Of the top five funds which attracted most money over the past month, as measured by Trustnet data, two are from the property sector; the SWIP Property fund and the Aviva Investors Property Trust fund
This interest by investors comes despite it being the worst performing sector over a three year period, and the second-to-worst performing sector over a five-year period.
Yield compression had been a factor in the previous decade, when property prices went up resulting in overall positive returns to investors. But, yields started to rise rapidly in the summer of 2007, as the credit crisis hit the cash available to put into property.
Now, investors wary of bonds are looking for another area in which to invest, and property fits the bill. One fund to note is the CF Canlife Property Jersey fund. Although not IMA sectorised per se, it is top ranked among all property peers over three years Trustnet data suggests, and illustrates the ongoing importance of London as a centre for this market.
Over a three year period to 31 January 2010, the fund returned -11 per cent, at a risk level of 5.9, against a sector average return of -36.8 per cent and a higher risk level of 13 per cent.
Over 40 per cent of the fund’s holding is one investment, Hertford Street, London. This hotel property, which overlooks Park Lane is, the fund’s management team says, a secure investment they are keen to hold on to.
“The property – which is in a prime part of London – has a very long lease with around 80 years unexpired,” the group’s estates director Mike Roberts says. “We’re very happy to have that concentrated investment there right now."
Roberts says Canlife is seeing a surge of money back into the property sector, but he expects things to slow by the latter part of 2010.
“We’re seeing a rise in values at the moment, driven by little stock versus too many buyers,” he says. “One set of buyers who are showing particular interest are those coming from overseas interested in central London assets. The weakness of sterling has fuelled this further."
Roberts says the big issue for the sector is growth into 2011, and the speed at which occupier markets will recover.
“What happens with quantitative easing and bond yields will hit property, too,” he says.
Other than the Park Lane property, Roberts says the fund’s most important holdings are a retail property in Glasgow, and a holding in Reading, where RBS is the current tenant.
Views are still mixed elsewhere. A poll from F&C last week showed investors were polarised in their opinion: 52.5 per cent of respondents said now was a good time to invest in commercial property, while 47.5 per cent took the opposite view. The worry is that the easy money has already been made from the sector.
Aviva Investors last week noted a marked change in real estate sentiment in 2009, but said the key question for the sector was how long the rally in values in commercial real estate would last.
“The problem with the surge of money going into property funds is that the funds are often then left with a high cash weighting. There isn’t a wide selection of property to invest in, and funds can then be left to invest in properties which were not their first choice,” Adviser Fund Index panel member Jonathan Wallis says.
The supply-demand imbalance which is currently driving prices higher is expected to ease by year’s end, which may see returns easing.