Earlier this week Morningstar declared it had eliminated property from its active managed portfolios due to concerns over liquidity.
Then on Friday Columbia Threadneedle said it was moving its property fund to bid pricing in a development that followed similar moves already made by some of the biggest and best known property funds in the UK.
The moves are essentially an admission that sentiment has turned on the asset class and fund providers want to steady the ship by putting in place some light financial restraints on exiting the fund. This could well set off alarm bells for investors with property fund holdings.
The recent performance graph for the asset class as a whole makes interesting viewing, with its notable slide from mid-April.
Arguably more so than any other asset class, investors in property funds tend to be inclined to jump ship at the first sign of trouble and are always fearful of finding themselves at the back of the queue when the time comes to get their money out.
This stems from the factor that Morningstar alluded to; liquidity. Quite simply it is a lot harder to sell a shopping centre to allow for the return of investors’ cash than selling shares or bonds.
While panic mode could quickly take hold for many, this could actually create a great opportunity for those of the view that the recent wobble is nothing more than a Brexit-driven blip, and therefore somewhat of a false alarm.
One professional investor whose own analysis aligns with this way of thinking is Miton multi-asset fund manager David Jane.
“One of the big talking points over the last few months has been the UK property market,” he said. “The topic of Brexit has been weighing on the sector and more recently, a number of open ended funds have changed their pricing basis to bid causing valuation losses to clients.”
“It seems to us that the Brexit worries are a temporary feature as whatever the result, we don’t think there will be a material long term impact on interest rates, sterling or UK employment,” Jane continued. “We think the emergence of the UK as the ‘capital of Europe’ has more to do with its legal system, benign employment regulations and its use of English than whether we are in the EU. Of course we may be wrong on this.”
Jane also pointed to the way around the liquidity issue presented by ‘bricks and mortar.’
“We have recently made some tentative re-investments in the property sector again via UK REITS,” he said. “We hold our exposure in the form of REITS, taking the view that the liquidity and absence of pricing basis risk offset their greater exposure to movements in equity prices day to day.”
Jane added that Miton is “ultimately positive on the prospects for property as an asset class in the UK.”
If you hold views similar to this, then the recent developments should be your cue to top up your property allocation rather than bail out.
