Inflows into property funds have been so strong, fund managers have been left holding big amounts of...
Inflows into property funds have been so strong, fund managers have been left holding big amounts of cash while they search for investment opportunities.
Andrew Strang, managing director of Threadneedle Property Investments, said almost £400m this year has flooded into the Eagle Star Unit Linked property fund, doubling the fund's size to £800m.
As a result of the huge inflows to the fund, Strang is currently holding more than 20% cash.
'If it looked as though the inflows were very stable and low, then we would have a modest amount of target liquidity. But like now, when the cash is rapidly rolling in, we need to be somewhat cautious that investors may be using property as a temporary refuge and to ensure there is adequate liquidity to cover big redemptions.' he said.
The opportunities to invest the cash holding are also diminishing in what is becoming an increasingly competitive area of the market. Strang said it is becoming more difficult to buy property that will perform strongly because of competition among buyers and a lack of rental demand in some sectors, particularly offices.
Strang has introduced listed property shares into his portfolio for the first time in eight years of managing the fund because these companies are trading on a discount to NAV of 35% and therefore offer a cheap way of accessing property.
Shares of major property companies now represent 3% of his portfolio. Andy Hicks, manager of the Edinburgh Property Portfolio, is also into double-digit cash holdings at 12%.
He said although there are not many good opportunities around, a part of the reason for this high proportion of cash is increasing the average size of properties in the portfolio to higher than £5m.
Strang meanwhile believes the best times are past for property, noting that earlier this year, most property experts were anticipating of over 10% for 2003.
Because rental growth has fallen, total returns are more likely to be around 5%-7%, which after costs and tax would equate to less than 5%, Strang added.
Partner Insight Video: Advisers have had to adapt to the changing investment landscape.
Investment trust savings scheme