Lured by higher income levels, multi-asset managers have been moving back into property for the first time since the financial crisis. But are there still gains to be made? Cherry Reynard reports.
Could investors be starting to forgive the property sector after its dramatic boom and bust in 2007-2008? There are signs that a number of multi- asset managers are moving back to the sector after it has spent five years on the equivalent of the investment naughty step.
But how are they accessing it? And, after some solid performance, are there still gains to be made? Among those moving back into commercial property has been Mark Burgess, chief investment officer at Threadneedle, who says that the asset class has been the one area not yet to benefit from the vogue for yielding assets. “The yield is still over 6% for UK commercial property.
"If one considers the fundamentals, the UK economy is slowly improving and is unlikely to return to recession. The banks have improved their capital positions and are not the forced sellers they once were.
"In addition, private sector buyers, particularly from overseas, are now buying portfolios of real estate from the banks attracted by the returns on offer,” he says.
Burgess had held a long-standing underweight position but has now taken the decision to move modestly overweight.
He says: “On a five-year view, even allowing for the sizeable transaction costs, the returns on offer, particularly from a yield perspective, make this a good time to increase our exposure to this asset class.”
Burgess is not alone. Bill McQuaker, head of multi-asset at Henderson Global Investors, has also upped his commercial property weighting in recent months, investing in bricks and mortar property funds for the first time since the crash. He believes the yields available on commercial property look attractive as an alternative to bonds.
“There is also not the same crowding in commercial property as there is in the bond market. If people disengage from bonds and the money comes out, it could be quite painful,” he says.
The last set of IMA statistics showed £98m in net new retail money moving into the Property sector. This was some way short of that for the top-selling UK Equity Income sector at £358m but, nevertheless, showed some change in sentiment towards it. iShares also reported that flows into real estate investment trusts (REITs) surged in the first quarter of the year and reached a record not seen since before the crash.
However, there are signs that the low-hanging fruit in the property sector may already have been picked. Property shares funds, in particular, have had a strong run of performance, particularly those with international exposure.
This is not simply because shares tend to anticipate higher returns – whereas valuations from bricks and mortar funds take time to catch up – there have been strong structural reasons for the outperformance of property companies.
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