Cast your mind back to five years ago and professional investors thought nothing of allocating a relatively large chunk of their alternatives exposure to the asset class in expectation of double-digit yields and capital growth.
Of course, we all forgot about liquidity and things got ugly as bricks and mortar funds halted redemptions. Arguably the most infamous example, New Star International Property Fund, held around £700m at its peak but that figure had more than halved by the time its ban on redemptions was lifted in 2010.
Things haven’t changed much since then and, despite their clients’ continued thirst for income-generating assets, few asset allocators have gone beyond the acceptable 5% mark in property funds.
Dampened enthusiasm
A glance at our latest sentiment survey for fund managers in 2011 and it’s clear that enthusiasm for UK property – and admittedly its performance – has been about as flat as a week old tin of Tizer at a Tupperware party (itself very fashionable once).true
But could things be changing again? Just today we’ve seen Schroders appoint a new head of property funds with the group having taken over running of a £600m pool of assets. Elsewhere, Kames Capital recently upped its game by poaching a team of property multi-managers from ING REIM.
Late last year, the AIC told us how returns from UK property investment trusts had beaten the average company return over three years, while a tightening of discounts from 32% in September 2008 to 6.5% in September 2011 was cited as evidence for a return in popularity of the asset class.
From an open-ended perspective, net retail sales of property funds dropped from £3.6bn in 2006, down to -£360m in 2008, then back up to £1.8bn in 2010. The IMA has yet to release its final figure for 2011, though the expectation is for a further fall with just £18m achieved between September and November, while the August figure was -£52m.
We’ll be taking a closer look at the prospects for the asset class in the coming weeks, though for now it’s clear that it is going to take more than just a few trend setters to get property back in fashion.
Do you currently plan to increase your clients’ weighting to property? Let us know.
