Brexit puts case for property diversification

Tom Walker, co-head of the Schroder Global Cities Real Estate Securities fund, said: “It is all about diversification.”

Spreading risk across asset classes has been a good rule of thumb over the past few months.

Gilt yields have hit historic lows, especially after another round of fiscal stimulus by the Bank of England and the 4 August cut in the base rate to 0.25 per cent.

UK mid- and smaller-caps, which are more aligned to the fortunes of the domestic economy, have been exceptionally volatile since Britain discovered on 24 June the majority had voted to leave the European Union.

It is not just about diversification across asset classes, but diversification across the global property market Tom Walker

And within a couple of weeks of the vote, concerns over international companies holding fire on renting retail premises or occupying prime city office space caused nervous investors in UK commercial property funds to start drawing their money out of property funds.

One after another, UK commercial property funds with daily dealing closed their doors, either by imposing fair value adjustments (penalty fees on people wanting to withdraw their funds), or by issuing temporary suspensions.

But those property funds with lower or limited exposure to the UK commercial property market have not suffered anywhere near the rush on their funds. As Mr Walker comments, it is not just about diversification across asset classes, but diversification across different sectors of the property market, and exposure to fast-growing global cities which are offering strong yields.

Indeed, as Mr Walker comments: “Approximately 10 per cent of our fund was invested the UK and 90 per cent invested elsewhere around the world.

“You could say 10 per cent of our fund had a bad Brexit, but 90 per cent of it had a very good Brexit.”

Mr Walker made his comments in an exclusive interview with FTAdviser for FTAdviser Talking Point.

Talking Point is a new editorial partnership between FTAdviser and Schroders, which aims to bring you up to speed on a given subject matter each month over the course of a year.

Hot topics such as behavioural finance, the US elections, what is happening in global property fund management, risk profiling and pensions freedoms will be explored in depth.

Each month, there will be an exclusive TalkingPoint feature, which will qualify for 30 minutes’ worth of structured CPD, as well as videos with fund managers and investment specialists from Schroders, news stories, polls and adviser commentary from your peers.

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