Signs property funds have peaked
A second UK property trust’s move away from offer pricing has raised the question of whether declining interest in the asset class is widespread or confined to isolated cases.
Aberdeen Asset Management last week shifted its £3.5bn Property Trust from offer pricing to a mid-price basis, six months on from a similar move by Aviva Investors.
The change, which equates to a 3.8 per cent loss for those exiting the fund, has come as a result of the trust’s investor protection committee predicting “broadly neutral” fund flows for the vehicle, which remains a strong performer over one and three years.
Last summer, Aviva Investors switched its £2bn Property Trust from offer to bid pricing, wiping 5 per cent off returns for investors wishing to redeem.
It reversed that change at the end of 2015, saying inflows had returned, but the move by Aberdeen has led to some questioning the sector’s prospects.
Richard Shepherd-Cross, managing director of property investment firm Custodian Capital, said: “The stockmarket has fallen and people feel overweight in property and feel they have to adjust their property balance.”
Meena Lakshmanan, head of investment solutions for Vestra Wealth, added: “These investor outflows in both Aberdeen and Aviva are likely to be caused by large investors seeing opportunities elsewhere, such as European real estate, rather than general sentiment away from the asset class. We do not expect to see massive liquidity pressure yet. But this will most likely change in the next 18 to 24 months, when the yield story becomes less compelling.”
Fund flows are a sensitive issue for open-ended property funds, as they are typically unable to buy and sell underlying holdings quickly in the event of large inflows or redemptions. Many managers of UK property portfolios have run elevated cash levels in recent months in a bid to mitigate this risk.
An Aberdeen spokesperson said: “The decision reflects an expectation that fund flows are likely to remain broadly neutral in the near term, with the result that the trust will likely not incur costs associated with investing new money for the time being.”
Elsewhere, a spokesman for Kames said it was continuing to see “good interest and good flows” into its £368m Property Income fund. But five other UK property fund managers contacted by Investment Adviser declined to comment or were unavailable.
As of yet, fund flows into the Investment Association (IA) Property sector have shown little sign of reversing en masse – though a gradual decline can be observed in recent months.
This decline meant the fourth quarter of 2015 was slowest for property fund sales in more than two years, according to figures released today (January 25) by the IA.
According to FE Analytics, over five years the Aberdeen Property Trust has returned 29.4 per cent compared to 30.6 per cent from the IA Property sector. Over three years, the fund has delivered 28.4 per cent against its peer group’s 19.4 per cent.
SAFE AS HOUSES?
-3.8%
Price impact of the Aberdeen Property Trust change
£427m
Net retail inflows for the IA Property sector in the fourth quarter of 2015, the lowest level since Q2 2013.
