Looking for income? Buy these three solid property funds
Apparent high-yielding bargains often turn out to be value traps. But these three property funds look like solid buys for income investors.

What looks like a bargain often turns out to be anything but. With interest rates and bond yields at rock-bottom levels in recent years, many investors have poured money into equities offering not just a high yield but also the prospect of capital gains. Widespread dividend cuts earlier this year tore these hopes apart, providing an expensive lesson that if it looks too good to be true, it probably is. High-yielding shares have hidden risks but there are exceptions, especially when, as now, investors are cautious.
Many funds in the property sector, for instance, weren’t getting the benefit of the doubt, yet the decision by ICG Longbow (LSE: LBOW) to commence an orderly wind-up, resulting in a 16% jump in the share price, shows that the market isn’t always right. The shares now yield 7% and trade at a 13% discount to net asset value (NAV), so they still look attractive.
Investing in property loans
UK Mortgages (LSE: UKML) also invests in property-backed loans so its income is not sensitive to the capital value of the underlying property, only to the credit-worthiness of the borrower and the security backing the loan. Launched in 2015, it is managed by Twentyfour Asset Management, a boutique firm specialising in fixed interest, and has £186m of net assets invested in residential mortgages. The portfolio consists of six pools containing £1.65bn of mortgages in total, a quarter owner-occupied, the rest buy-to-let.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
These pools were assembled by the lenders, such as Coventry Building Society, and then “securitised” with low-cost loans. The residual £172m (there is £14m of cash) provides UKML with a yield close to 10%, enabling it to target a total return of 7%-10% per annum after costs.
Clearly, the portfolio is highly leveraged but the average mortgage size is under £200,000, the average loan-to-value is below 70%, the average interest rate is 2.7% and less than 0.5% of the mortgages are three months or more in arrears. The number of payment holidays is falling and Nationwide has reported that house prices increased by 5% annually in September, the highest growth rate in four years. Despite this, the shares at 67p yield 6.7% and trade at a 16% discount to NAV. Yet a few months ago M&G, on behalf of one of its funds, bid 67p a share, a bid that was later increased to 70p.
M&G’s fixed-interest team is highly regarded so the bid was a powerful endorsement of the outlook for the portfolio and its rejection by UKML’s board implies that they agree. UKML also states that “fair value (ie, NAV of 80p a share) is not projected to represent a simple realisable value as the portfolios will be held to maturity”. The realisable value is stated at 95p a share so the shares still look cheap.
A Reit poised for growth
The shares of GCP Student Living (LSE: DIGS), a real estate investment trust (Reit), trade at a 17.5% discount to NAV. Management expects to receive only 62% of budgeted income this academic year compared with 82% in 2019-2020 and a five- year average of 94%. The structural shortage of student accommodation, especially in London, which accounts for 80% of DIGS’ assets, underpins long-term letting prospects but the short-term fall in income has led to the dividend being slashed. This year’s expected income after expenses should still be nearly double financing costs but that would only leave enough to cover a dividend of around 2p.
Restoration of the 6.2p dividend would imply a 4.4% yield and, perhaps, return the shares to the premium at which they traded before the pandemic. With mass vaccination just a few months away, the outlook for providers of student accommodation has brightened. The shares of DIGS still look attractive.
Sign up for MoneyWeek's newsletters
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.

Max has an Economics degree from the University of Cambridge and is a chartered accountant. He worked at Investec Asset Management for 12 years, managing multi-asset funds investing in internally and externally managed funds, including investment trusts. This included a fund of investment trusts which grew to £120m+. Max has managed ten investment trusts (winning many awards) and sat on the boards of three trusts – two directorships are still active.
After 39 years in financial services, including 30 as a professional fund manager, Max took semi-retirement in 2017. Max has been a MoneyWeek columnist since 2016 writing about investment funds and more generally on markets online, plus occasional opinion pieces. He also writes for the Investment Trust Handbook each year and has contributed to The Daily Telegraph and other publications. See here for details of current investments held by Max.
-
Shein shifts IPO focus to Hong Kong
The development piles fresh pressure on London’s beleaguered stock market, which many had hoped would be boosted by Shein’s IPO
-
Scientists turn lead into gold – could it wreck the yellow metal's price?
Medieval alchemists have been vindicated after scientists turned lead into gold, but the results aren’t going to crash the gold price any time soon
-
Investment opportunities in the world of Coca-Cola
There is far more to Coca-Cola than just one giant firm. The companies that bottle and distribute the ubiquitous soft drink are promising investments in their own right.
-
Streaming services are the new magic money tree for investors – but for how long?
Opinion Streaming services are in full bloom and laden with profits, but beware – winter is coming, warns Matthew Lynn
-
'Pension funds shouldn't be pushed into private equity sector'
Opinion The private-equity party is over, so don't push pension funds into the sector, says Merryn Somerset Webb.
-
A fund that looks past the short term in Asia
Growth should remain strong, but successful managers also need to focus on governance. Here's how to find active opportunities in Asian markets.
-
Greg Abel: Warren Buffett’s heir takes the throne
Greg Abel is considered a safe pair of hands as he takes centre stage at Berkshire Hathaway. But he arrives after one of the hardest acts to follow in investment history, Warren Buffett. Can he thrive?
-
Who will be the next Warren Buffett?
Opinion There won’t be another Warren Buffett. Times have changed, and the opportunities are no longer there, says Matthew Lynn.
-
Will Comstock crash – or soar?
Opinion The upside for Comstock, a solar panel-recycling and biomass-refining group, dwarfs the downside, says Dominic Frisby.
-
Can new management turn RIT Capital around?
After several years of poor performance, there is growing evidence that RIT has turned the corner, says Max King