Growing prospects following ‘a bumpy year’ for investors

The popularity of property is highlighted by figures from the Investment Association (IA), which show strong positive net retail sales of the asset class from 2009 onwards, including a high in 2014 of £3.8bn.

But last year’s surprise Brexit result provided a catalyst for investors to pull away from open-ended property funds, which led to a number of vehicles temporarily suspending dealing or applying adjustments to asset valuations for liquidity reasons. 

As a result, the FCA published a discussion paper on ‘Illiquid assets and open-ended investment funds’ earlier this month, in which it proposed a number of questions to decide “whether more (or different) rules and guidance are needed”. 

The paper explicitly notes “we do not intend to ban open-ended funds holding illiquid assets or prevent retail investors from acquiring units in open-ended property funds”, but does suggest a number of areas of review, such as the treatment of professional investors, portfolio structure and direct intervention by the regulator. 

Many have welcomed the FCA’s discussion paper, with Marc Haynes, senior vice-president at Cohen & Steers, noting that while there has been the gradual removal of trading restrictions on the affected funds, there are still questions about these vehicles’ future viability. 

Mr Haynes explains: “Given the continued uncertainty about how Brexit will be managed, we believe investors can no longer afford to turn a blind eye to the structural flaws of these vehicles. The recent misadventure also raises the question of whether it is time for UK investors to seriously consider diversifying real estate investments away from a purely domestic-focused strategy to a more pan-European or even global strategy.”

But while property faced issues in 2016 it wasn’t all bad news. Andrew Hook, co-manager on the Aviva Investors Property Trust, notes: “With both an increase in stamp duty and the EU referendum, 2016 was something of a bumpy year for UK property. Capital values fell by 2.8 per cent overall, although with income returns factored in, the market did still deliver a positive total return, 2.6 per cent, according to the IPD Monthly Index, for the eighth consecutive year.”

Meanwhile, infrastructure is a growing area of interest, with 15 AIC-listed funds and seven open-ended vehicles listed in the IA sectors, including one new launch in 2016. With Miton planning to unveil a global infrastructure income fund later this year, the asset class looks set to remain a source of interest for investors. 

Jemma Jackson, PR manager at the Association of Investment Companies, notes: “Investment companies in the infrastructure and property space are becoming more mainstream with financial advisers, as the Matrix third-quarter adviser and wealth manager platform purchases demonstrate. 

“The Property Direct – UK sector was the most popular investment company sector for the first time, accounting for 15 per cent of adviser and wealth manager purchases of investment companies via platforms in the third quarter 2016. Infrastructure was in fourth place – at 8 per cent – behind the more generalist UK Equity Income and Global sectors.”

In a world where governments are looking more to fiscal stimulus, such as infrastructure spending, rather than monetary stimulus, there could be more opportunities for property and infrastructure investors, providing they are aware of the liquidity risks involved. 

Nyree Stewart is features editor at Investment Adviser