Funds operating in the IMA Property sector were among the worst hit during the 2007 to 2008 financial crisis, with many losing well over 50 per cent of their value over the 24-month period. Poor growth prospects and average yields ensured that the sector was shunned by the vast majority of UK investors, and redemptions duly followed.
However, the continued search for yield combined with improving economic sentiment – particularly in the UK – has seen a number of property funds take in significant amounts of money of late.
According to the IMA, more than £177m went into the sector in September, a figure only beaten by IMA UK Equity Income and IMA Mixed Investment 20%-60% Shares. At least £100m has gone into property funds in each of the last six months – a stark contrast from 2010, 2011 and 2012, when most months saw net redemptions from the sector.
Top-10 bestselling IMA sectors in September
| Name |
|---|
| UK Equity Income |
| Mixed Investment 20-60% |
| Property |
| Europe ex UK |
| Absolute Return |
| UK Strategic Bond |
| North America |
| Unclassified |
| Global |
| Mixed Investment 40-85% |
Source: FE Analytics
Our data suggests that the Henderson UK Property fund, headed up by Marcus Langlands Pearse and Ainslie McLennan, has been the biggest winner. FE Analytics data shows that £155m has gone into the vehicle in the last three months, pushing total assets under management (AUM) to more than £1bn.
The fund, which is yielding a healthy 4.2 per cent, has returned 37.88 per cent since the managers took over in April 2009. This puts it behind the sector average, though Henderson UK Property has a superior yield and has also been less volatile.
Top-10 bestselling IMA Property funds over 3months
| Name | Inflows (m) |
|---|---|
| Henderson - UK Property | 155 |
| BlackRock - CIF Global Property Securities Equity Tracker | 72 |
| SWIP - Property Trust | 71 |
| Standard Life - UK Property | 71 |
| Ignis - UK Property |
67 |
| M&G - Property Portfolio | 46 |
| L&G - UK Property Trust | 45 |
| Mayfair - Property Income Trust for Charities |
31 |
| Schroder - Global Property Securities | 30 |
| Aberdeen - Property Share | 28 |
Source: FE Analytics
Other popular choices in recent months include the BlackRock CIF Global Property Securities Equity Tracker, the SWIP Property Trust and the Standard Life Inv UK Property fund, which have all taken in around £70m since the height of the summer.
The change in sentiment towards UK property this year has also been reflected in a significant re-rating of the listed UK Property investment companies, most of which are now trading at premiums to NAV. The big exception is the TR Property trust, which remains on a discount, as reported by FE Trustnet in a recent article.
The rise in residential property prices has been a constant feature in newspaper headlines in recent months. Many experts, including JPM fund manager Georgina Brittain, believe that investors will be able to cash in on the UK property revival for many years to come.
Those looking to play this theme via a fund in the IMA Property sector are likely to be left disappointed, however. The vast majority of physical property funds and investment trusts invest exclusively in the commercial sector, which doesn’t have a direct correlation to the residential market.
Tim Cockerill (pictured), investment director at Rowan Dartington, thinks many investors may have fallen into this trap. "I think there is a misconception from ordinary investors that what is happening in the residential market will be seen in all property funds – this just isn’t the case," he explained.
"The reason you should buy commercial property is that you believe rents will go up, which requires a strong economy. A shortage of properties also helps to pull rents up, but on the whole at the moment this isn’t the case in the UK."
"There is, however, a shortage of residential property, and policies like the Help to Buy scheme are helping demand."
Cockerill says funds that invest in property shares may get indirect exposure to the residential recovery, but that he prefers bricks and mortar funds that have better diversification benefits.
Most funds operating in the IMA Property sector invest in shares, with notable exceptions including the L&G Property and SWIP Property funds.
While IMA Property has recovered since the lows of the financial crisis, it has failed to keep up with rivals in equity sectors such as IMA UK Equity Income and IMA Global in recent years. IMA Property has also been similarly volatile and has a very high correlation to both sectors.
Performance of sectors over 3yrs
Source: FE Analytics
Cockerill points out that funds that invest in property shares do not boast the diversification benefits of their bricks and mortar counterparts, which is why he tends to avoid them.
"These funds are just specialist equity funds, which means they will tank when the market tanks," he said. "Bricks and mortar property funds will be more resilient, however."
Net retail flows overall in September were at £2.2bn, compared with £1.1bn in the same month last year. Equity funds once again beat their bond counterparts – £1.34bn compared with £43m.
August 2012 was the last month that fixed interest funds were more popular.
A total of £358m went into UK Equity Income funds over the 30-day period, with JOHCM UK Equity Income and Unicorn UK Income proving particularly popular.
All major equity sub-sectors benefited from net inflows in September, with interest in Asia ex Japan and Global Emerging Markets picking up following net outflows in the previous month.
IMA Corporate Bond was by far the worst-selling sector, with net redemptions of more than £100m. It is clear that investors remain concerned about the potential impact on yields of an end to quantitative easing by central banks, and prefer UK Strategic Bond funds instead.
This trend has also been reflected in strong demand for closed-ended funds with floating rate income and some inflation protection.
