Property price swings return

As market volatility continues and the government urges businesses to step up their plans for a no-deal Brexit, news reaches us of a familiar piece of contingency planning from the UK property fund universe.

Columbia Threadneedle has moved its open-ended property fund from offer to bid pricing, temporarily taking 6 per cent off returns in the process, stating that "current market uncertainty" means the strategy has begun to see redemptions.

The shift will inevitably bring back memories of early 2016, when several property funds made similar switches as sentiment reversed in advance of the Brexit vote. Wealth managers won't need a reminder of what happened next.

There are a few mitigating factors to consider on this occasion. The first is that Threadneedle's fund has been by far the most popular physical property offering over recent months, having moved to offer pricing at the start of last year in response to greater client interest. That was always likely to prompt a swing in the other direction at some point.

For many others, the uncertainty never really went away. The M&G Property Portfolio, for instance, has remained on bid pricing ever since the EU referendum. And while Henderson did also shift from offer to bid this June, the overall appetite for the asset class prior to that was considerably lower than in early 2016.

A look at retail sales figures - which were a reasonable early warning system last time around - shows £71m of net outflows for the newly created UK Direct Property sector in October. Nor was there much in the way of inflows in the earlier months of the year: managers should be better prepared this time.

All this isn't to say history can't repeat itself. The post-referendum fund gatings may have worked as intended - ie they protected investors from the worst of the uncertainty - but few would welcome another test of the system.

In that context, we've already written about how DFMs are now taking a more liquidity-minded approach to the asset class. Wealth managers were blamed in some quarters for the events of 2016 - many have already prepared the ground to ensure they're not caught in the midst of things a second time around.

DFM picks vs the rest: 2018

Yesterday we discussed the sight of a new consensus on asset allocation in 2019, and the enduring difficulty of where to move next. But as the dust settles on a tumultuous year, some fund buyers could be forgiven for feeling just as uncertain about the performance of their selections over the past 12 months.

In theory, active managers should do well when market dispersion picks up, and are commonly backed to outperform in falling markets, too. The reality is often slightly different. So while DFMs generally fare well when it comes to picking the winners, this year has really proved a test.

With this in mind we’ve delved back into our MPS tracker. This time we’ve taken wealth managers' five most popular fund picks across a variety of asset classes, and compared them against common benchmarks or, in the case of fixed income, their peer group. We’ve also looked at how many funds are actually in the black this year:

In six of the nine sectors above, at least three of the DFM sector's five top fund picks outperformed. But it’s only in the US and global equity universes where most of the top names have actually made gains.

When it comes to bonds, the UK, Japan and EM, every fund has failed to make money. To have done any different this year would have been no mean feat.

On a relative basis, it's perhaps not a surprise that DFMs still struggle with their EM picks, but the fact just two Japanese names beat the benchmark is one to think about, given this is a space where wealth firms tend to huddle around established names. And Europe is another weak point wealth managers will be pondering as the final days of December tick over.

Bearish but not too bearish

Speaking of asset allocation shifts, the final Bank of America Merrill Lynch fund manager survey of the year has arrived this week. You may well have seen some of the headline figures already: a record shift into bonds, a sharp drop in global inflation expectations, the worst global profits outlook in a decade, and a big reduction in UK equity allocations.

As Baml sums up, all that looks like investors "are close to extreme bearishness". To add to the sense that things are shifting fast, being long tech stocks has been knocked from its perch as the most crowded trade for the first time since January.

It's been replaced in that position by the long dollar trade. That would seem to add weight to one of the consensus bets for 2019 that we mentioned yesterday: dollar weakness. But as FTAlphaville notes, strategists have called the dollar wrong both last year and the year before. No wonder all eyes remain on the Fed meeting this evening for clues as to what happens next.

Amid all this hunkering down, it's worth drawing out one other stat from the survey. Baml says investors aren't yet bearish enough to trigger its contrarian buy signal for risk assets, and that's perhaps borne out by the state of cash positions. Weightings rose from 4.7 per cent to 4.8 per cent, which is pretty mild considering all of the above. Investors are nervous, but they're not yet close to throwing their hands up and capitulating.