This weighting is the same whether or not it is a single fund allocation or a fund of funds holding – property is simply not getting fund flows.
This is hardly a surprise given what happened to property funds immediately before 2009, but are they on the cusp of a comeback?
In various interviews we have with portfolio managers so far this year, many of them have mentioned property as being back on their radar as it is a potential answer to many of the demands made of them by investors.
They provide diversification; they offer a good source of income; they have greater liquidity than back in 2008.
But do they offer returns? According to the latest IPD benchmark the specialist, non-core property funds do.
The student housing sector has returned nigh on 12% so far this year, against 1.2% for property as a whole and considerably higher than the 8.2% return from equities.
Another specialist sector set for a boom is UK agricultural land with Savills predicting a 36% increase in the average value of farmland in five years from now. There are even specialist propositions looking to take advantage of this, such as Brooks Macdonald’s UK Farming plc, an unquoted public limited company targeting investment in existing arable farms.
I am not advocating that all our readers should rush out and invest in property straight away. But what our readers have told us in many of the interviews we have run so far this year is that they are looking to move away from the “mediocre middle” of funds, with a core and satellite approach where specialist funds sit outside a more mainstream core.
There are a number of property propositions already in existence, in addition to others in the pipeline, that will play an active part on this drive to more specialist investments. While the initial yield may be on the low side – around 4% according to some estimates – social housing, for example, will boom given the UK population is set to increase by another 25% by 2050.
Where will they all live? You know they will congregate around the bigger cities because that is where the work will be so the need for housing will increase.
How will they be fed? Alongside increased imports of staple food stuffs, the existing arable land we already have will need to be worked harder, with production per acre increasing making farmland that much more valuable.
Property funds are much more than the traditional bricks and mortar offerings and they will surely benefit from some of these longer-term fundamentals wealth managers are already spotting.