Figures from the Investment Management Association show the IMA Property sector has seen positive net inflows in every month of the year, being the one of the most popular sector for retail money.
In October, net retail inflows into the sector stood at £274m, making it the second bestselling peer group. By comparison net inflows into fixed interest funds was almost half of this at £139m.
Any investors moving money out of fixed interest funds and into property have, broadly speaking, been rewarded. FE Analytics shows the average fund in the IMA Property sector has beat the sector average in all IMA fixed income sectors this year.
Performance of sectors in 2014
Source: FE Analytics
Here we look under the bonnets of three funds that members of FE’s panel of leading investment advisers have put in the AFI Aggressive, Balanced and Cautious portfolios, suggesting their potential suitability for investors with different risk profiles.
Henderson UK Property
This £2.5bn fund has been co-managed by Marcus Langlands Pearse and Ainslie McLennan (pictured) since April 2009.
It invests mainly in office and retail space, which make up a combined 57 per cent of the portfolio. A large proportion of its major holdings are across London and the south-east.
As well as the AFI panel, it is recommended by fund research firm Square Mile, which it says is suitable for income and capital growth.
“The fund managers are experienced and are able to draw upon the extensive resources within the substantial property investment business created by the alliance of Henderson's real estate business,” it said.
“Furthermore, the managers are acutely aware of the importance of income, liquidity and the key drivers of the property market and the impact that these may have on managing an open-ended fund in what can be an illiquid asset class.”
“They therefore seek to invest in good quality properties with financially sound tenants in order to mitigate these risks.”
Over the past three years the fund has only had a short period – December 2011 to March 2012 – where cash dipped below 10 per cent of total assets, suggesting attention to liquidity by the managers.
During the past three years the fund has gained 24.3 per cent while the IMA Property sector average gained 32.83 per cent.
Performance of fund and sector over 3yrs
Source: FE AnalyticsThe fund has an ongoing charges figure (OCF) of 0.85 per cent and has a current yield of 3.5 per cent.
Kames Property Income
Alex Walker and David Wise’s fund is the youngest of the three having only launched in March 2014, since which it has returned 4.39 per cent while the average fund in the sector has gained 10.49 per cent.
However, this is too short a time frame on which to judge a long-term holding. In addition, the fund has been less volatile than its peers as the graph below shows.
Performance of fund and sector since Mar 2014
Source: FE Analytics
It uses Kames’ ‘active value’ strategy, which aims to exploit the gap between prime and secondary property through picking quality assets outside of the prime London markets.
It then hopes that refurbishments, lease extensions and new lettings will boost yields.
The fund recently passed £110m in size and has put much of the money to work, having completed 15 purchases across the UK totalling £92m with the remainder held in cash and real estate investment trusts, according to the fund’s latest trading update.
Kames Property Income has a clean OCF of 0.96 per cent, but doesn’t have a yield figure yet.
M&G Property Portfolio
At £3.6bn this fund is one of the largest in the sector, partly due to inflows in 2014 making it one of the bestselling property funds of the year.
The fund has been run by Fiona Rowley since its launch in June 2009. Over that time, it has outperformed its peers, returning 67.95 per cent while the IMA Property sector is up 43.47 per cent.
Performance of fund and index since June 2009
Source: FE AnalyticsIts largest bets are offices, warehouses and industrials units, respectively, which together make up more than 70 per cent of the portfolio.
Square Mile says that while the fund can hold up to 30 per cent in cash it typically holds around the 10 per cent. It also notes that M&G boasts one of the best-resourced teams in the UK and is a significant real estate manager with £30bn of property assets across a range of fund structures.
“The team has a disciplined and proven investment approach and are extremely aware of the importance of income, liquidity and the main drivers of the property market,” Square Mile said.
The consultancy adds that the fund’s liquidity profile of the fund is closely monitored and the team, like Henderson’s managers, are attentive to the potential issues facing an open-ended fund investing in an illiquid asset class such as property.
The fund has an OCF of 1.23 per cent and has a yield of 3.92 per cent.
