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Adviser Fund Index: Advisers are baffled as retail investors move into property

The Investment Management Association’s latest sales by asset class breakdown adds to hopes that the property sector is bottoming out. Yet Adviser Fund Index panellists are sceptical and surprised by the figures, confused even.

In May, British-domiciled property funds saw positive inflows for the first time since April last year.

According to the Investment Management Association, there were total net inflows of £2m, compared with net outflows of £12m in April.

Surprisingly, it is retail investors who seem to have regained confidence with IMA figures showing net retail sales were £36m, up from £19m in the previous month.

Institutional investors, however, continued to take money out of property funds. In May, the sector saw net outflows of £34m from institutional investors, compared with outflows of £31m in April.

“It seems odd,” says Ben Willis, an investment manager with Whitechurch Securities. “I would anticipate that decision from institutional investors. I do not see why property is attracting retail investors,” he says.

Hilary Coghill, chief investment officer at City Asset Management, is equally baffled. “I am surprised that retail investors are putting money back into property.”

Coghill says there are some opportunities in the sector but City Asset Management will maintain its zero weighting.

Fund managers are, however, reporting a bottoming out of the market.

AWD Chase de Vere looks upon it as “things are less negative” than in the previous months. “We are very happy to stay where we are – waiting until an opportunity is available,” says Justine Fearns, a research manager at AWD Chase de Vere.

Whitechurch Securities moved out of the asset class in 2007 but it has started reviewing the sector recently. Despite signs that the market is stabilising, Willis says it is too soon to go back into property.

Illiquidity, the panellists agree, is the main problem in the sector. Accessibility, especially that of overseas property, is another problem. “Everyone could potentially do with a little exposure, even retail investors. But the choice is not that great,” says James Davies, an investment research manager at Chartwell.

There are about two dozen funds he would consider but Davies has “no great desire” to recommend any of them.

City Asset Management does not want exposure to commercial property until 2010. And even if it decided to move back into property, it would prefer Britain, and possibly other European countries. Even within Britain, panellists find it difficult to make specific recovery forecasts. Since property is not a homogenous asset class, the recovery may well vary.

Davies says that the current economic climate in Britain is likely to increase his avoidance in the sector. He does not plan to add exposure until the fourth quarter of this year as he expects value to fall further.

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