Should you still be investing in property funds with Brexit looming?
Following the EU referendum in 2016, investors expected property markets to fall sharply, resulting in a rush of withdrawals from property funds. Several funds had to suspend withdrawals or apply value adjustments to stave off the tide while they raised money through the sale of assets. Despite the initial panic most of the affected funds have now re-opened and the sector overall has performed relatively well since 2017. We give our view on what's next for the sector.
So what’s changed since 2016?
- The Brexit referendum caught property funds off-guard, the unforeseen tide of redemptions could not be met immediately due to a lack of liquidity. Property fund managers appear to have learned from 2016 panic and have boosted liquidity by holding cash positions.
- Although the referendum led to a drop-in price, it created pockets of value in the market and astute managers have been able find these opportunities and have subsequently seen good returns.
- Overall, in the UK commercial property segment, office and high-street retail spaces have seen a fall in demand in light of Brexit uncertainty and the demise of high street shopping in general. Industrial spaces such as warehouses and data centres on the other hand have benefited from the growth of e-commerce and increasing warehousing needs.
Fund performance has steadily improved since 2016
Source: FE Analytics
So what’s next for the sector?
At FE Invest we believe that calling the markets accurately and consistently is an impossible task. Even without Brexit there are always an infinite number of random variables that can have an impact.
That’s why we focus on what we know best and that’s how to control the level of risk our model portfolios take. Although we feel property funds are now better equipped to deal with the possibility of a hard Brexit, we still must ensure that our portfolios are prepared for any eventuality, this is one reason why we do not hold physical property as liquidity can be a key issue when running £1.7bn of client assets. We do however use other forms of property to ensure our portfolios are as diversified as possible.
To find out more about our investment philosophy and how we ensure your clients never lose more than they expect to in a downturn
This blog is intended for Financial Advisers only. The value of investments and any income from them can fall and you may get back less than you invested.