Swiss listed property funds: understanding the price behind the buildings

A building can retain its tenants while the security providing exposure to it loses value on the stock exchange. Understanding Swiss listed property funds therefore means reading two stories together: the buildings themselves and the price investors pay. A few distinctions make a fund factsheet easier to interpret.

NAV and market price tell different stories

Net asset value, or NAV, is the fund’s net assets divided by its units outstanding. Liabilities and deferred taxes are deducted from assets. The market price is the price traded on the exchange; its difference from NAV is a premium, or agio, when positive and a discount, or disagio, when negative. Property investment glossary.

Consider an entirely hypothetical example. A unit with a NAV of CHF 100 trades at CHF 120: its premium is 20%. If its price falls to CHF 110 while NAV remains unchanged, the premium becomes 10%, but an investor who paid CHF 120 experiences a price decline of 8.3%. Stable NAV has not protected their purchase price.

The example suggests checking the date of NAV alongside the date of the market price. A large premium or discount cannot, by itself, establish whether a fund is attractive: the assumptions behind that price still need to be understood.

A distribution is only part of performance

Distribution yield compares the distribution with the unit’s market price. Stock market performance combines changes in price with distributions. Yield and performance definitions.

In a second hypothetical example, a unit bought for CHF 100 distributes CHF 3 and is worth CHF 92 at the end of the period. Without reinvestment, fees or taxes, the result is minus 5%: 92 plus 3, measured against the 100 francs invested. The payment received has therefore not offset the fall in the security’s price.

When comparing charts, check how they are constructed. SIX distinguishes SWIIT, the Total Return version of the SXI Real Estate Funds Broad, from SWIIP, its Price version. The former accounts for reinvested distributions; the latter follows prices. SWIIT and its variants.

Funds and property companies are different

A fund unit provides access to a collective investment; a company share represents an ownership interest in a business. SIX accordingly separates funds into the SXI Real Estate Funds Broad and property shares into the SXI Real Estate Shares Broad. The SXI Real Estate Broad combines both categories. Comparing a fund with that combined index therefore brings property companies into the reference too. SIX methodology, section 5.26.

Read the risks behind the buildings

Interest rates influence financing costs and valuations. Borrowing adds sensitivity: if debt remains unchanged, falling property values increase the debt ratio. FINMA explains how a correction combined with redemption requests can create liquidity pressure and force asset sales. FINMA’s property risk analysis.

Selling a unit to another investor must also be distinguished from the fund selling a building. A stock exchange listing does not guarantee a buyer at the desired price. For a closer reading, bring together the debt maturity schedule, vacant space, planned building work and disclosed fees. The useful habit is to connect every percentage with what it measures and the period it describes.

Direct ownership raises other questions: our article on property in a long-term wealth plan covers income, maintenance and succession.