PA ANALYSIS: Are property funds now a trap or an opportunity?

Added 20th May 2016

There is a strong case to be made that British property funds have had their latest spell of time in the sun and have begun a significant downswing, but the situation seems more nuanced than that.

PA ANALYSIS: Are property funds now a trap or an opportunity?

Earlier this week Morningstar declared it had eliminated property from its active managed portfolios due to concerns over liquidity.

Then on Friday Columbia Threadneedle said it was moving its property fund to bid pricing in a development that followed similar moves already made by some of the biggest and best known property funds in the UK.

The moves are essentially an admission that sentiment has turned on the asset class and fund providers want to steady the ship by putting in place some light financial restraints on exiting the fund. This could well set off alarm bells for investors with property fund holdings.

The recent performance graph for the asset class as a whole makes interesting viewing, with its notable slide from mid-April.

 

"The moves are essentially an admission that sentiment has turned on the asset class and fund providers want to steady the ship"

Arguably more so than any other asset class, investors in property funds tend to be inclined to jump ship at the first sign of trouble and are always fearful of finding themselves at the back of the queue when the time comes to get their money out.

This stems from the factor that Morningstar alluded to; liquidity. Quite simply it is a lot harder to sell a shopping centre to allow for the return of investors’ cash than selling shares or bonds.

While panic mode could quickly take hold for many, this could actually create a great opportunity for those of the view that the recent wobble is nothing more than a Brexit-driven blip, and therefore somewhat of a false alarm.

One professional investor whose own analysis aligns with this way of thinking is Miton multi-asset fund manager David Jane.

“One of the big talking points over the last few months has been the UK property market,” he said. “The topic of Brexit has been weighing on the sector and more recently, a number of open ended funds have changed their pricing basis to bid causing valuation losses to clients.”

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Alex Sebastian

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Alex joined Portfolio Adviser in April 2014 and has been a financial journalist since 2008. He has previously held editorial positions at the Financial Times Group and Euromoney Institutional Investor. Alex is NCTJ qualified and has a degree in economics from the University of Sussex.

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