Investors pull £12m a day from property in October

Investors pull £12m a day from property in October

Investors withdrew £12.5m per working day from UK property funds during the month of October, according to latest data.

The findings, published by Morningstar last week (November 21), showed a hefty £308m of net outflows from the UK property-direct sector — funds which invest directly in UK property — last month.

According to Morningstar this was the 13th consecutive month the category had experienced outflows, which now total £2.7bn since September 2018.

The outflows made the UK property-direct fund sector the Morningstar category that received the fifth highest net outflows during the month of October.

UK property has been out of favour over the past few years due to political uncertainty, primarily surrounding Brexit, which has damaged domestic facing stocks such as property.

On top of this concerns have been raised about the holding of illiquid assets in open-ended funds. Following the EU referendum in 2016 some open-ended property funds had to be suspended when they couldn't meet the level of requested redemptions.

Tom Sparke, investment manager at GDIM, removed the direct property element of his portfolios last month.

He said: "Direct commercial property funds have offered less value in recent years, yields available from these are generally below 3 per cent today and capital values continue to be slowly deteriorating.

"This makes these assets less attractive from a return point of view and they also hold an additional risk, that of liquidity.

"Commercial property deals are difficult and can take some time and therefore if numerous investors wish to relinquish their holdings at the same time there can be an issue fulfilling these requests."

Mr Sparke added that times of stress could reduce the valuation of a fund as it may not be able to achieve the "full value" of its assets in a distressed sale situation.

He thought this was a risk in the near future which he did not believe was offset by the relatively low returns on offer.

Jason Hollands, director of communications at Tilney, said: "The end of October was, of course, meant to be the deadline for the UK to leave the EU and was a time of peak political anxiety given the parliamentary stalemate.

"In that context, it is unsurprising that investors were reducing exposure to Sterling assets and property in particular, given its sensitivity to rates and the domestic economy."

Other Morningstar categories to experience large net outflows included alternative multi-strategy, which investors pulled £1bn from, and UK Equity Income funds which experiencing £986m of net outflows in October.

UK Equity Income funds have in part been hurt by the fallout from former star fund manager Neil Woodford. 

The Morningstar category that experienced the highest inflows on the other hand was the global emerging markets equity group.

Emerging markets seemed to have dodged the equity fund flow exodus recently, at a time when stocks and shares funds were experiencing record outflows.