Last week’s statistics from the Investment Managers’ Association, which saw property funds attract the largest allocations, are as clear an indication as you could wish for that investors have now largely moved away from fear and are ready to embrace risk once again.
With £367.6m of retail funds going into property in October, it seems property funds are viewed as the most palatable form of that risk. Investors and advisers now clearly see value in the sector, which was hardest hit in the downturn.
Part of this shift could simply be a vindication of what has been a long and concerted marketing and media campaign by property funds over the past three months. They have had a good story to tell, as global economies have stabilised and those with cash have surveyed a landscape that included properties with some very cheap-looking valuations.
Managers have spread the word that, in this asset class at least, this is a clear-cut case of having reached the bottom of the market.
However, there are those who are concerned a punt on property may not be the best use of a risk budget. During an Investment Week Conjecture debate held last Thursday, Jean Michelle Six, global strategist at Standard & Poors, claimed he would not “touch property with a barge poll”.
He felt the sector’s real return to health would be extremely slow and was predicated on the continued growth of economies, which are still largely the beneficiaries of government stimulus packages.
His case is helped by the tables in this week’s sector analysis on page 26-27. These show that despite some stellar one-year performance, the three-year numbers on even the best-performing funds still make painful reading. According to the Morningstar data, over one year the best-performing fund, the Standard Life Global Reit is up a staggering 62.05%, but over three years the best-performing fund is the First State Asian Property Securities, which still finds itself down 13.78%.
Also, looking at the statistics and bearing Jean Michelle’s comments in mind, the real time to invest in property could have been six months or even a year ago. What are the chances 2010 will see more 60% plus jumps in property fund performance?
And as investors shrug off fear, are they chasing a little too hard to make up for their losses earlier this year, jumping from bandwagon to bandwagon as different asset classes look undervalued compared to the ones they are currently holding?
It is hard not to agree property has bottomed out, but investors burnt on the downside appear to have regained their nerve very quickly on the upside.
At another Investment Week Conjecture debate, one adviser asked property managers if they could guarantee investors would not find themselves burnt again. The answer to that question is: of course – there are no guarantees apart from death and taxes.
There also has to be some concern that not all the bad news is out there. The Dubai story may have proved altogether less catastrophic than it first appeared, with most stock markets shrugging it off after an initial fright.
But there was a sense the default seemed so obvious with the benefit of hindsight. This all-so-obvious hindsight could as easily be applied to many investors who piled into commercial property funds only a few years ago, when we were so clearly at the top of the market.
