According to data from Cofunds, the property sector recorded the highest percentage of net advisory sales (62%) last month. This chimes with IMA data earlier this summer which showed the sector achieving its highest sales for nearly five years.
Unsurprisingly, it is UK-focused property funds that dominate the bestseller list including options from Henderson, SWIP, M&G and Threadneedle.
Despite ongoing concerns about liquidity in the sector, bricks and mortar appears more popular than securities. However another popular vehicle, Legal & General UK Property Fund, also has a fair share of its assets allocated to equities.
Recovery on track
Simon Molica, senior investment consultant and portfolio manager at Morningstar, notes that returns have picked up and the asset class has been recovering quite substantially over the past 12-18 months, and this has driven investors to take notice of it.
“For the M&G Property Portfolio in particular, transactional volumes undertook last year were quite substantial and they managed to reduce their cash level to a high single-digit level which is much lower than the others, and that certainly is an advantage given where the market has recovered from,” he says.
“Henderson UK Property has a bias to the South and South East that has helped it over the recent period, though London in particular is a hard market to get involved with at the moment because prices are so high and a lot of foreign investors have been buying in.”
Molica also picks out Threadneedle UK Property Trust as being slightly different in the fact that it invests in secondary property and its investments generally have a higher yield.
He adds: “Office and industrials has done well on a sector level and they are areas that the funds have concentrated on. On the flip side, the funds have tried to avoid retail, especially the high street in poorer locations.”
Student accommodation is a sector that is also growing in popularity with managers looking for diversification. Ainslie McLennan, co-manager of Henderson UK Property Unit Trust recently singled out the sector as being defined by a favourable demographic and demand story, strong lease terms, stable incomes, and rental growth. She said this less cyclical, more resilient and maturing market sector is witnessing inward yield shift as capital values rise.
A leap of PAIF
The ongoing conversion to the more investor-friendly PAIF structure may aid the popularity of funds going forward – just this week Henderson announced its intention to convert its fund. M&G Property Portfolio was one of the first to convert to PAIF status and L&G UK Property converted in May this year.
Still some investors on platforms do not directly benefit from this as they access the portfolios through feeder funds which do not have the ability to report income on different levels.
“I’m not sure at the moment retail investors are seeing much difference but as time goes and with better technology investors will be treated better in terms of tax by being in a PAIF so they should always chose a PAIF option if it is there,” adds Molica.
He concludes: “I think everyone agrees that the momentum in capital values that we have seen in property this year has been surprising and I think that means it takes away from the 2015 and 2016 returns, but I think this years’ returns will still be strong.”
