When most people hear that their investment portfolio contains a property allocation, they picture something tangible. A building somewhere, bricks, glass, tenants paying rent. It’s an understandable image. It also happens to be misleading, a fact that is more interesting the deeper one looks into it.

The property component in your Citywide portfolio contains no buildings at all, and it never did. That shocking truth and understanding what it does contain, and why, gets to the heart of how our portfolios are built.

Not all property is the same

There are three ways to hold property as an investment, and they are not interchangeable, however much the label “property” suggests otherwise.

The first is direct ownership: buying a building. That is realistic for institutional investors and large pension funds, but probably not for you. Transaction costs, stamp duty, management obligations, illiquidity, and concentration risk make it structurally unsuitable at private client scale.

The second is an open-ended direct property fund, a pooled vehicle that buys physical buildings and offers, in theory, daily dealing. From roughly 2005 to 2016 this looked like the best of both worlds: the returns of real estate with the accessibility of a standard fund. Assets under management peaked at £22 billion in May 2016, the month before the Brexit referendum. This structure however did not survive the next decade.

The third is listed real estate: shares in REITs (Real Estate Investment Trusts) and property companies that trade on stock exchanges, own physical assets, and distribute rental income as dividends. This is where your portfolio sits.

What happened to the middle option

The appeal of open-ended direct property funds rested on a single promise: liquidity. Investors could get in and out daily, just as they could with an equity fund. There was one problem, and it turned out to be the only one that mattered. And this problem is that underlying buildings cannot be bought and sold on a daily basis. They take months to transact and need surveyors, solicitors, and a willing buyer at a fair price. When withdrawal requests exceeded the cash a fund held, managers had only one option: shut the exit door. The industry calls this gating, which is a polite financial word for a you can’t get your money out.

In July 2016, following the referendum, M&G suspended trading in its property fund, then valued at £4.4 billion, citing uncertainty in the UK commercial property market. Aviva and Standard Life did the same within days. Investors who needed their capital could not reach it. The buildings had not fallen in value. The structure simply could not cope with the volume of people trying to leave at once.

Then it happened again. M&G gated a second time in December 2019, and on 16 March 2020 the Covid-19 pandemic triggered a sector-wide closure: nine funds suspended dealing at once, and investors collectively paid around £40 million in fees while their money was locked away. Some funds never reopened. Aviva wound down its UK Property Fund entirely, and as of early 2025 was still selling the last property, five years after the gate came down.

The same flaw triggered suspensions in 2016, 2019, and 2020. Three separate crises, three separate gates, the same structural problem each time. It is not often an industry gets to run the same experiment three times and reach the same conclusion, but that’s what happened.

The problem was structural: an open-ended fund promises daily dealing on assets that take months to sell, and that promise holds right up until everyone asks for their money at once. Listed property has its own trade-off, and it moves with the market in a way direct property doesn’t. But you can sell it on a Tuesday, a Monday or any other day of the working week. We think that is the trade worth making.

– Clinton Askew

So why invest in commercial property REITs?

The US Congress created REITs in 1960 so that ordinary investors could own a slice of large-scale property, the sort of thing that had until then belonged to institutions and the very wealthy. Tax logic is the main driver: a REIT pays no corporation tax on the income it distributes, provided it hands at least 90% of that income to shareholders, so the money is taxed once in the investor’s hands rather than twice on the way there.

The iShares Environment and Low Carbon Tilt Real Estate Index Fund, the property allocation in both Citywide portfolios, works differently. It holds shares in listed property companies that trade every day, so the fund has a daily price and, reassuringly, no gate.

The trade-off is correlation, and it belongs in the open rather than in a footnote. Outside crisis conditions, listed real estate behaves differently from the broader equity portfolio. Citywide’s investment process assigns commercial property a correlation of 0.67 with global developed equities, lower than any other growth asset in the portfolio: value equities sit at 0.93, small cap at 0.90, emerging markets at 0.75. Commercial property is also a $15 trillion market, too large a piece of the global opportunity set to leave out on principle.

That lower correlation is not a curiosity, but rather, exactly why the allocation earns its place. Because property does not move in lockstep with equities and bonds, it has on occasion posted positive returns when both had turned negative, as in 2000. And the cost of that protection has been smaller than investors might expect: over the last 20 years listed property has returned 6.3% annualised against 6.5% for UK equities, a gap of 0.2 percentage points for a materially different risk profile. Compounded over time, that difference is what improves the whole portfolio’s risk-adjusted return. It is the arithmetic of diversification, working quietly, exactly as intended.

But one should note, that in a severe crisis listed real estate falls alongside everything else. In 2008, listed REITs fell harder and faster than direct property in the initial crash. That is an acknowledged feature of the structure, not a hidden risk, and the sharper fall came with a sharper recovery. Listed REITs recovered as equity markets did, while investors in direct property funds stayed locked out until that recovery was well under way.

As a consequence, the expected return is modest by design: 3.5% a year in real terms in the central case, 2.5% in the conservative scenario. The fund was never meant to be a hard driving return engine. Think of it as ballast rather than sail, and it is priced and sized accordingly.

An American care home and your portfolio

We can follow the money down to a single building, which is more satisfying than it sounds, because a diversified real estate allocation is easy to describe in the abstract but hard to picture. Trace one holding far enough and the abstraction resolves into bricks, actual occupants, and a business with a name.

The fund tracks the FTSE EPRA Nareit Developed Green Low Carbon Target Index, which holds 331 positions across global listed real estate. It is predominantly American, and its largest position, at just under 7%, is Welltower Inc.

Welltower owns no grandiose offices or shopping centres. Instead, it owns care homes, senior housing, and medical office buildings across the United States. Founded in 1970 as Health Care Fund Inc, it was one of the earliest healthcare REITs, and its 2015 rebrand signalled the shift from passive landlord to an infrastructure business assembling the physical fabric of elderly care at scale. The logic is straightforward, if a little sobering. The American population is ageing, the infrastructure to house and treat the elderly does not yet exist in sufficient quantity, and Welltower is building it.

Given the favourable tax treatment and distribution rules that pay for it, Welltower cannot accumulate capital internally the way a conventional corporation can. It must return income to investors and then go back to the capital markets to fund every acquisition, which makes it acutely sensitive to interest rates. When rates rose sharply in 2022, healthcare REITs sold off hard regardless of occupancy or rental income. The underlying business was performing perfectly well. The cost of the next acquisition had simply gone up, which the market, not unreasonably, minded quite a lot.

That mechanism is precisely why listed real estate carries a correlation of 0.67 with global equities rather than 1.0: the share price is partly a claim on income from buildings that already exist, and partly a claim on the ability to finance the ones that don’t yet. And the ones that don’t yet are the point. Welltower is building the infrastructure of later-life care, the same care whose cost so many clients are already weighing for their own parents. None of that is an accident of index construction. It is what a diversified property allocation turns out to be in real life, once you follow it down to a care home in Ohio with someone’s mother living in it.

The chain runs from a care facility in Ohio, to a REIT on the New York Stock Exchange, to an index tracked by a BlackRock fund, to a Citywide portfolio in Surrey. The building stands, occupied and operating, entirely unaware of any of this. The allocation to it is deliberately structured, systematically selected, and built to remain accessible regardless of what markets do next.

That is what property does in your portfolio.

Sources

Citywide Financial Partners, Investment Process, January 2025.

iShares/BlackRock, Environment and Low Carbon Tilt Real Estate Index Fund (UK), ISIN GB00B848DD97, fund factsheet, January 2025.

Association of Investment Companies, Where next for investors in open-ended property funds?, May 2022.

Investment Week, Suspended property funds collect £40m in management fees over 2020, September 2022.

Morningstar UK, UK Property Funds Begin to Lift Suspensions, September 2020.

Morningstar UK, UK Property Funds: The Long Goodbye?, October 2023.

Morningstar UK, UK Property Investors Have Another Painful Year, December 2024.

Aviva Investors, UK Property Fund: Temporary Suspension of Dealing, 2020, updated 2025.

ReAssure, Important note on investments in property funds, August 2021.

MPAMAG, M&G suspends trading in £4.4bn property fund, July 2016.

iShares (BlackRock), UK Property UCITS ETF (IUKP), tracking the FTSE EPRA/NAREIT UK Property Index, as reported in ETF Strategy, Suspension of UK property funds highlights liquidity benefits of ETFs, July 2016.

Trustnet, AIC Direct Property UK sector hit by lack of stock and liquidity, February 2009.

Reuters, Tough 2009 looms for open-ended UK property funds, December 2008.

The allocation to the iShares Environment and Low Carbon Tilt Real Estate Index Fund varies across Citywide’s model portfolios according to each client’s individual risk profile. Past performance is not a reliable indicator of future returns. The value of investments can fall as well as rise.