Ask Colin

Are listed property trusts a real diversification from listed shares, particularly in bear markets, or are they just a subset of shares?

No, they are really a different asset class to shares.

A company pays dividends and retains earnings, which drive capital gains. Thus the decision to invest in shares is looking to a total return that is made up of the sum of dividends and capital gains.

A listed investment company is similar to the extent that some earnings are retained and the underlying assets are shares. They are simply an alternative to investing directly in companies, but with a wrinkle that sometimes they are at a premium to the market price of the underlying assets and often at a discount.

Listed investment trusts, property or otherwise are structured as trusts rather than companies for several reasons, but essentially they take advantage of the law allowing trusts to avoid taxation if all profits are passed to unit holders each period (the unit holders pay tax on the distributions). Since there is no retained earnings, they will tend to show less growth than shares.