• We are pleased to announce that the winner of our Feedback Prize Draw for the Winter 2024-25 session and winning £150 of gift vouchers is Zhao Liang Tay. Congratulations to Zhao Liang. If you fancy winning £150 worth of gift vouchers (from a major UK store) for the Summer 2025 exam sitting for just a few minutes of your time throughout the session, please see our website at https://www.acted.co.uk/further-info.html?pat=feedback#feedback-prize for more information on how you can make sure your name is included in the draw at the end of the session.
  • Please be advised that the SP1, SP5 and SP7 X1 deadline is the 14th July and not the 17th June as first stated. Please accept out apologies for any confusion caused.

Marketability

omurice

Active Member
Hi,

In Page 32 of Chapter 10, what does 'Property unit trusts may have to hold cash to guarantee marketability, and this may dilute the expected return' mean?
 
Unit trust managers guarantee that they will purchase units back from a unitholder, whenever the unitholder no longer wants to hold those units. This means that units held in unit trusts are a highly marketable asset: they are easy to sell.

In order to be able to provide this marketability guarantee, the unit trust managers either need to hold quite a bit of cash in the fund (to use to pay for the units that are being bought back from the unitholder) or they need to be able to sell the assets held in the unit trusts pretty quickly to convert them into the cash needed. In a fund that is a directly invested in property, the latter isn't going to be feasible. So the unit trust managers need to hold quite a lot of cash within the property unit trust, ie a material % of the fund will have to be invested in cash rather than in property.

Because cash normally has a lower return than property, this 'dilutes' (ie drags down) the overall return on the fund.

Hope that helps.
 
Back
Top