After nearly a year of consecutive outflows (with the exceptions of August and September 2016), Investment Association (IA) statistics show that from March this year UK investors have been retuning to the sector, with three months of positive inflows over £50m ($65.4m, €57m) until May.
This is a far cry from June last year, when some £1.45bn of investor money was redeemed from the sector as investors hit the proverbial panic button in the wake of property being withdrawn from the market after the UK’s shock decision to quit the EU.
This forced several funds – including Standard Life UK Real Estate, Aviva Property Trust and M&G Property Portfolio – to suspend dealing and place penalties on those investors who wanted to take out their cash.
Twin drivers
So nearly 13 months on, has the investment landscape changed for property, or is it the case of investors once again being their own worst enemies when it comes to investing in the asset class?
Chris Metcalfe, investment director at IBOSS, feels there are two primary drivers behind the recent desire of investors to get back into property.
“Firstly, the asset class still offers diversification against bonds and equities (and cash),” he says. “Secondly, as a real asset, at least in the case of a bricks and mortar fund, just the feeling of tangibility rather than the intuitively murkier and abstract world of alternatives such as absolute return funds makes it feel somehow safer.”
Lessons still to be learnt
Of course June last year was not the first time the sector has experienced wide scale redemptions, which have placed huge strain on the funds within it. The first time it happened was back in 2008 when commercial property prices crashed, suggesting investors have not learnt from previous mistakes.
“Paradoxically, when we get occasions of large scale corrections such as 2007/08, the safety feeling quickly evaporates and somehow morphs into a liquidity issue for the bricks and mortar funds in open-ended vehicles,” says Metcalfe.
“Few subjects seem to divide the financial community like the suitability of these funds. The media are to some degree between a rock and a hard place, if they report the rush for the exit they are accused of whipping up hysteria and making the situation worse, on the other hand it’s their job to report issues that are relevant to their readership. It’s a tricky one.”
