While global markets continue to be volatile, property is offering pension managed fund managers an ...
While global markets continue to be volatile, property is offering pension managed fund managers an income stream less threatened by economic shocks.
The Prudential M&G Discretionary Fund has 2.7% of its total assets invested in the Prudential M&G Pooled Property Fund, headed by Steffan Francis, director of property management at Prudential Property Investment Managers.
That weighting is high compared to the fund's competitors, according to Francis, and reflects optimism for returns for investments in property.
Francis says: "What we see is there is a slight slowdown in property returns, but they are still relatively good. There is some caution around some parts of the market, but overall the threat to the market seems fairly muted. It is not as if we have got a massive development surge or as if the prices have been driven up to unsustainable levels as can be argued has been done in other areas. Property yields are relatively high compared to other markets."
Francis says the property market returned 14.5% in 1999 according to the Investment Property Database of institutional property investors, however in the 12 months up to the beginning of June that has slipped to 14.1%.
He is playing a southern bias in his portfolio with 25.1% of assets in London, 33.3% in the South East, and 15.7% in the South West. That compares to just 25.9% in the rest of the UK.
The decision to bias the South of England is based on the economic strength of the region, particularly the science parks and similar properties. He is slightly underweight London property compared to his peers because he sees new supply as threatening returns.
The Pooled Property fund has 45% of assets in retail premises, which is underweight relative to peers due to Francis' belief the internet and oversupply is set to continue to erode returns. Francis has 37.2% in office property and 17.8% in industrial property. He adds the main drawbacks of the property market are its liquidity, a problem the Prudential is looking to help solve by setting up a forum for property trading and to combat rising stamp duty, which makes buying and selling holdings costly.
Mark Bennett, investment director for the Standard Life Pension Managed Fund, said just under 2% of the fund was invested in property through the Standard Life Pension Property Fund.
Bennett says: "Property has a great attraction at the moment. There is a secure yield coming through which is attractive relative to bonds and a strong argument for double digit returns in the coming year."
In the medium term, Bennett expects equities to outperform property and says entry costs to the market are high. The market is illiquid with a large proportion of properties big enough to interest institutional investors, particularly in office property, concentrated in London.
Like Francis, he notes Standard Life has reservations regarding high street retailers, however is more positive on out of town developments.
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