How can I invest in housebuilders via a fund?

Important information: the value of investments and the income from them can go down as well as up, so you may get back less than you invest.

Q: Is there a fund which invests in UK building and construction companies? I am interested to invest in a fund which invests in a number of construction companies rather than having to buy shares in separate companies such as Taylor Wimpey, Vistry and Persimmon.

A: We couldn’t find any ordinary, ‘open-ended’ funds with large exposure to the housebuilding sector but one fund quoted on the stock market, the Aurora UK Alpha investment trust, has big holdings in two housebuilders, according to the latest portfolio information for the end of January. Barratt Redrow, its largest holding, accounts for 15.3% of its assets, while Bellway, its sixth largest, accounts for 3.7%. Collectively therefore its exposure to the sector is 19% of its assets.

Aurora UK Alpha is a highly ‘concentrated’ portfolio: it has just seven holdings at present. It’s very unusual for a fund, quoted or not, to have as much as 15% of its money in one stock. Such concentration does tend to make a fund riskier.

Gary Channon, who runs the portfolio, said earlier this month: ‘We are highly exposed to the UK housebuilding market, which attracts more attention than any other sector in which we invest, and so much of the commentary [on] this market is poor and often misleading.’

He said the rise in interest rates since the beginning of 2022 had had an immediate impact on mortgage rates and availability, and on expected house prices. Then the Liz Truss Budget ‘nearly blew up the gilt market’.

‘It came as no surprise that housing executives at that time were cautious about their 2024 output, which stopped them buying land and slowed down the rate of future site openings,’ Mr Channon added. ‘Given the stability that returned in 2023/4, we expect that housing output will improve during 2025 and, given the level of demand, so will revenue. The land going through the books by then for those with shorter landbanks, like Barratt Redrow, will have increasingly improved margins so this will show up in the reported earnings.’

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