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Wealth managers' property picks hold firm as shutdown continues; DFMs look to EMs for aggression

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Open and shut case

Another property fund closure has added more fuel to the fire of those who say the open-ended sector has no future, nor even much of a present. Aegon, like Aviva Investors before it, is to shut its property fund and feeder funds, suspended since March 2020, citing a lack of liquidity.

The strategy was the only property fund still gated – other, higher profile names reopened earlier this year – and as such, the likes of Quilter Cheviot think it unlikely that others will follow suit.

But with the FCA’s new rules for daily dealing real estate funds still pending, the move is a reminder of the shadow that continues to linger over the sector.

Wealth managers, for their part, view most of this through the rear-view mirror. Their own replacements continue to serve them pretty well: the property security trackers that feature in many portfolios have flourished this year in line with the global recovery, while listed infrastructure strategies are (in the main) still grinding out returns, too. Those who have the ability to look at closed-ended options will also be happy enough, though the likes of HICL are now trading at relatively lofty premiums.

There are caveats in all these cases: question marks over diversification benefits in the case of trackers, and suspicions that infrastructure’s strong recent run may be starting to peter out.

But all make for less dramatic alternatives when compared with the sight of open-ended funds constantly closing and reopening. Wealth managers will be aware that this is one area where they shouldn’t let perfect be the enemy of good.

Calculated risk

On Monday we discussed the dispersion of returns among discretionaries’ aggressive portfolios over the past six months, and mentioned that was in part due to the differing allocations for which they’ve opted. In truth, the biggest thing that distinguishes these portfolios is their deviation from the index.

The Pimfa Global Growth benchmark, to take the nearest industry equivalent, is more or less a replica of the MSCI World Index. That means 65 per cent plus in US equities, with Japan next at 6.5 per cent and other countries bringing up the rear.

DFMs’ riskiest offerings, by contrast, tend to stick more closely to the splits favoured by their other portfolios. That means the UK leads the way, with the US in second place.

Crucially, these two allocations look pretty similar to a balanced portfolio in size as well as in relation to one another.

The average aggressive model has just over 20 per cent in the UK, coupled with 17 per cent in the US. There’s more smaller companies exposure in the mix here, but otherwise these exposures are more or less the same as in balanced models.

That means other regions do a lot more of the heavy lifting. Japanese positions are exactly in line with the World index at 6.6 per cent, and Europe is an underweight. That leaves thematic funds and emerging market or Asia Pacific offerings to shoulder the rest of the burden.

In many cases, EM and Asia funds account for 20 per cent or more of adventurous portfolios. Those regions have had a tougher time of it this year, but most wealth firms still consider such funds good options for clients prepared to take the risks.

Going on trust

Another bumper set of results for Liontrust, which will come as little surprise to onlookers given the continued appetite for their UK equity and ESG-focused propositions. A bigger test will come later this month, however, when the company reveals the results of its ongoing sustainable trust fundraising.

There’s no doubting the credentials of its team, who say the closed-ended structure will enable them to invest in smaller companies not held by their open-ended funds. And the interest in ESG propositions is hardly likely to wither away any time soon.

All the same, equity trust fundraisings have been fraught with difficulty in recent years, particularly in cases where a similar open-ended product is already available. Success on this front might encourage a few others to do the same. Failure would confirm that alternative assets remain the principal focus of trust IPOs for the foreseeable future.

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