IN FOCUS
/ SECTOR PROFILE /
HISTORY
REPEATING ITSELF
With Brexit the latest event to highlight the problem with open-
ended property funds, Adam Lewis asks if investors should rethink
their exposure to the asset class
A
S A SECTOR OF THE
MARKET IN WHICH
TO INVEST, UK
commercial property is
never far from the
headlines. It seemed investors had
forgiven it for its sins of the past the
last time Trustnet Magazine profiled
it back in May 2015, but then along
came Brexit and the yo-yo love affair
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sprang forth once more. Retail
investors panicked and sought to
sell their holdings in open-ended
UK commercial property funds as
soon as possible. The end result, for
the second time in the sector’s
history, was that many large funds
were forced to suspend dealing and
place penalties on investors who
wanted to remove their cash.
The first time was back in
2008 when commercial property
prices crashed, and it seems
investors have not learnt from
their previous mistakes. While
he could not have forecast Brexit,
Hargreaves Lansdown’s head of
research Mark Dampier predicted
as much in the previous focus
on the sector. At the time, he
trustnetdirect.com
said: “My worry is what happens
where there is a downturn and
money flows out again? You
could have the very best fund
manager, but he will still be
forced to sell assets and this will
affect the price of the fund.”
A RE-THINK
Just 13 months later in June
2016, several funds – including
Standard Life UK Real Estate,
Aviva Property Trust and M&G
Property Portfolio – did exactly
that. So should investors re-assess
their opinion of the asset class
and what are the best types of
funds to use?
There are currently 44 IA
Property funds to choose from, but
comparing them is no easy task.
This is because the sector does not
differentiate between geographic
areas, property types (residential
or commercial) or whether the
funds invest directly in bricks
trustnetdirect.com
“While there are
44 [IA Property]
funds, I do not
think any of
them are suitable
for portfolio
management
services”
& mortar or through the listed-
shares of property companies.
As a result, while Liontrust’s
head of multi-asset John Husselbee
has an allocation to property in the
target risk funds he manages, he
has no allocation in his target risk
portfolio management service.
“This zero weighting is based
upon the operational challenges of
investing in property, rather than
the investment challenges,” he
says. “When you are looking for an
allocation to property, you have to
ask yourself ‘what is available and
what is suitable?’ In most cases, the
answer is that while there are 44
funds available, I do not think any
of them are suitable for portfolio
management services.”
SLAVES TO PANIC
This, says Husselbee is not because
of what the funds are trying to do –
the best fund in the sector over five
years (F&C Real Estate Securities)
has produced a return of 147.3 per
cent – but more because of how
they are slaves to the actions of
panicked retail investors.
“The sector requires long-term
patience and unfortunately for
me, the majority of investors are
looking to trade and speculate with
property,” he says. “They wouldn’t
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