While the UK housing market has continued to hold up, some UK property-focused funds have failed to recover from the slump in sterling and confidence since the EU referendum last year.
UK house prices were up 3.3 per cent for the three months to May year-on-year, although growth has shown some signs of slowing since hitting a peak of 10 per cent in March 2016.
In the commercial property sector, things have been a bit more stressed.
A number of funds in the Investment Association’s universe were forced to suspend redemptions following the aftermath of the referendum as investors panicked over the impact of Brexit. The drop-off in sterling had a significant impact on fund performance as assets devalued, while internationally-focused funds fared better.
Indeed, during 2016, a bespoke IA Property sector created by FE Trustnet and consisting of UK-focused funds fell by 0.13 per cent, compared with the official IA Property sector average fund’s gain of 8.19 per cent. A bespoke index of IA Property funds excluding UK-focused funds rose by 13.68 per cent.
However, year-to-date, the UK-focused sector has fared a little better, rising by 3.5 per cent. However, its more internationally focused peer sector has risen by 5.7 per cent over the same period.
Performance of sectors YTD
Source: FE Analytics
The sectors include a mix of bricks & mortar and property securities funds, making direct comparison somewhat difficult.
Indeed, some analysts have suggested that while the sector might be viewed as having particular challenges to overcome, property equities have fared better.
Eduardo Gorab, property economist at consultancy Capital Economics, wrote earlier this month: “It’s not hard to find bearish views on the prospects for UK commercial property. But neither real estate equity prices, nor equity market volatility provide compelling support for the bears.
“And with no sign of a recession or a surge in risk-free rates, it is hard to see why values would start to drop in the second half of the year.”
Below, FE Trustnet takes a look at some of the best performing property funds of 2017 so far to see if conditions have been better than last year.
Aberdeen Property Share
The best performing UK-focused property fund so far this year has been the five FE Crown-rated Aberdeen Property Share fund, having risen by 11.51 per cent.
Performance of fund vs sector & benchmark YTD
Source: FE Analytics
The £361.2m fund, managed by Aberdeen's pan-European equity team, invests in property company securities or companies deriving a significant proportion of revenue or profits from property or a have a significant proportion of asses in property.
Holdings in the fund are concentrated in the UK, although it does have some overseas exposure. Currently the fund has 82.6 per cent of its portfolio invested in the UK with 17 per cent held in countries including France, Germany, Sweden and Switzerland.
The fund’s largest holding is Workspace Group: a real estate investment trust (Reit) founded in 1987 and originally responsible for managing the property assets of the former Greater London Council.
The Aberdeen Property Share fund is a top performer over the long term compared with its UK-focused peers, having risen by 114.25 per cent over five years.
It has an ongoing charge figure (OCF) of 0.86 per cent.
L&G UK Property
One of the best performing UK-focused bricks & mortar funds year-to-date is the L&G UK Property fund, a property authorised investment fund (Paif) overseen by FE Alpha Manager Michael Barrie and colleague Matt Jarvis.
The £2.7bn fund typically invests up to 80 per cent in commercial properties. Year-to-date, the fund is up by 3.17 per cent.
Its largest portfolio allocation is to direct property, making up 68.68 per cent of the fund, a further 24.12 per cent is held in cash and 6.46 per cent is held in Reits.
The Paif’s largest geographic allocation is to the West Midlands, which represents 14.84 per cent of the portfolio. The fund also has double-digit allocations to central London and properties in the south-east.
Fund rating agency Square Mile noted: “In many ways this is a traditional property fund, however, at the margin, Legal & General Property Group offer something different in the way that the cash position is managed.
“Through investment into Reits and derivatives that seek to replicate the returns of the IPD index (use of the latter is a key differentiator compared to many competitors), the team attempt to make more effective use of cash.”
Over five years the fund has delivered a 44.08 per cent gain, compared with a five-year return of 37.96 per cent for the broad sector.
It has an OCF of 0.75 per cent.
Henderson Horizon Pan European Property Equities
The best performing internationally-focused fund, year-to-date, is the three crown-rated Henderson Horizon Pan European Property Equities fund.
The €280.1m fund is managed by Guy Barnard and aims to invest at least 75 per cent of its total assets in quoted equities and Reits with registered offices in the European Economic Area.
The fund’s largest exposure is to the UK, which presents 33.7 per cent. However, the fund also has large exposures to Germany (22.2 per cent), France (15.1 per cent) and the Netherlands (11.1 per cent). It also has Swedish, Spanish, Irish, Belgian and Italian exposure.
Year-to-date, the fund is up by 13.27 per cent. It has an OCF of 1.29 per cent.
F&C Real Estate Securities
Another top-performer so far this year is the five crown-rated F&C Real Estate Securities fund. Alban Lhonneur and Marcus Phayre-Mudge have managed the fund since 2010 and aim to deliver a total return greater than the FTSE EPRA/NAREIT Developed Europe Capped index.
The £81.2m fund takes long and short positions in property-related securities. Its largest exposure is to the UK, which represents 35.8 per cent of the portfolio’s geographic allocation. However, the fund also has significant exposure to Germany, France and Sweden.
The fund has an OCF of 1.33 per cent.