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The multi-asset funds betting big on property

04 June 2014

With the outlook for bonds looking increasingly uncertain, a number of multi-asset managers are taking large positions in another yielding asset class: property.

By Daniel Lanyon,

Reporter, FE Trustnet

Henderson Multimanager Absolute Return, Premier Multi-Asset Distribution and the Scottish Widows HIFLM range are amongst the multi-asset funds taking large positions on property, according to FE Trustnet research, with more than 10 per cent of their portfolios geared towards the asset class.

Investors have also been piling into property of late with net inflows into property investments increasing by more than 400 per cent in a year, according to figures from the IMA.

Net inflows to the sector were £100m in April 2013, but shot up to £446m in April 2014 – the sector’s highest net retail sales since December 2006. While the IMA Property is a combination of both “bricks and mortar” and property shares funds, it is the former which has attracted lion’s share of inflows.

The outlook for commercial property has been steadily improving over recent years as the UK economy has continued to strengthen.

This, along with increasingly bearish attitudes towards bonds, has led a number of high profile managers to up their exposure to commercial property as an income alternative.

Henderson’s FE Alpha Manager Bill McQuaker, for example, is using property, as well as absolute return funds, as an alternative to bonds as he expects yields to continue to rise over the coming years.

Our data shows that McQuaker’s £175m Henderson Multimanager Absolute Return fund has 11.43 per cent invested in property.

McQuaker uses Henderson UK Property for almost half of his exposure to the asset class. The fund, which is currently yield 3.8 per cent, has been a good investment for the manager so far; FE data shows it has returned 9.71 per cent over the past 12 months, compared to 5.72 per cent from the average fund in IMA Property.

Performance of fund, sector and index over 1yr


Source: FE Analytics

This return is almost exactly the same as the return of the FTSE All Share, but it has been significantly less volatile.

Henderson UK Property is one of the most popular property portfolios amongst multimanagers with 18 other fund of funds owning it in their top-10.

These include the five-crown rated Premier Multi-Asset Distribution and Premier Multi-Asset Monthly Income funds, which have 20 per cent and 18 per cent of their portfolios invested in property.

ALT_TAG Premier’s Simon Evan-Cook (pictured), co-manager on both funds recently told FE Trustnet he believed that returns on commercial property would match equities in 2014.

Evan-Cook says the reason why most investors underestimate property funds is because they do not properly account for rental income.

“We’re not trying to hit a six, but you’re going to make a fairly similar return from UK equities as are you are from commercial property factoring in rental income,” he said.

The manager believes that the risk/reward ratio is firmly in investors’ favour with property, which he says cannot be said of equities.

The Scottish Widows HIFLM Cautious, Defensive and Diversified Income funds have 11.6 per cent, 21.98 per cent and 18.5 per cent invested in property, respectively.

The three funds, all in the IMA Mixed Investment 40%-60% sector, have beaten the average return in their sector over the past year.

Two other five crown-rated multi-asset funds betting big on property include Smith & Williamson MM Cautious Growth and TB Wise Income, which have 19.4 per cent and 16.2 per cent, respectively.

One of the most popular fund of fund ranges – Jupiter Merlin – has also been increasing its exposure to property recently. It doesn’t have as much as 10 per cent in the asset class, but John Chatfeild-Roberts & co have added the Mayfair Capital Commercial Property Trust to their buy-list.

Multi-asset expert Tony Yousefian believes property is set to remain buoyant on a relative basis for at least the next three years.

The Charteris manager, who himself runs a property-focused portfolio, says the asset class has become an increasingly popular choice amongst asset allocators over the course of the last year, powered by strong growth in capital values and rental income.

An attractive future yield and diversification away from other asset classes will act as a catalyst for asset allocators to further increase their weighting to property in the months ahead, Yousefian says.

“We expect commercial property to post a return on capital in the region of 10-15 per cent this year,” he said.

“For those seeking income and who are prepared to diversify away from equities and bonds, it is the strong growth in rent values and its low correlation to equities which makes property such an attractive alternative at this time.”

“This is leading growing numbers of portfolio managers and asset allocators to show a greater conviction to the asset class.”


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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.