Who would have thought that such a dull asset class would cause such a stir? Commercial property has been caught in a torrent of “excitable press commentary”, to quote a phrase from a New Star ad.
The increase in redemptions of property funds has certainly livened up the summer months – a notoriously quite month for the fund management scene. And it has been spiced up with a war of words between New Star and Hargreaves Lansdown.
Hargreaves has been the long-standing property bear, seemingly upsetting New Star who, as we all know, has been selling property funds by the bucketload. New Star has been hitting out at Hargreaves for saying that cash is a better diversification investment than holding direct commercial property and for failing to point out that the Bristol firm has been negative on commercial property since 2003. Had investors taken that advice four years ago, it would have cost them about 60 per cent in missed returns, argues New Star.
Hargreaves’ retort is that its investors have done pretty well being in equities over the past four years, thank you very much, while Peter, who has never been one to mince his words, has had a pop at IFAs,too.
“The adviser’s job is to suggest where the client should be investing, not what can be easily sold,” he says.
He has a point but I am sure I will not be the only one to remind him of Hargreaves’ infamous Triple Isa, which enabled investors to buy Jupiter global technology, Framlington NetNet and Aberdeen technology funds, in the weeks leading up to the technology fallout in 2000. But I digress.
From the journalist’s chair, I have certainly never seen fund groups or some IFAs react as they did to a little bit of colourful press. Never before have I been given so much advice from so many on how to write an article.
It made me wonder whether they did protest too much. For starters, there is no doubt that millions of pounds has been taken out of the funds. True, the funds have raked in billions of pounds but, if as is believed, around £40m has been withdrawn, it is a significant amount in anyone’s book.
I also understand why groups have moved to a “bid” pricing basis to protect existing investors in the funds but whichever way you dress it up – rightly or wrongly, or as a matter of course – this still penalises any investor wanting to get out. Even Standard Life has admitted it is similar to a market value reducer on a with-profits fund.
However, I do not believe that tens of thousands of private investors are stampeding for the exit doors. I am sure that most of the redemptions, as the groups argue, have been made by professional investors or multi managers realigning their portfolios and taking profits in an asset class that has had a long decent run.
But I can see why groups are nervous. Private investors are fickle and the last situation they want is a panic, given the illiquid nature of property. Indeed, forget about “excitable” press because it will be interesting to see how the thousands of unseasoned property investors react to their statements later in the year if the performance figures do not improve.
According to Morningstar, for the year to July 23, New Star property is down by 5 per cent, Norwich Union’s property fund has fallen by 4.5 per cent, Skandia property minus 5 per cent and Aberdeen property share minus 15 per cent.
Meanwhile, in what may well have been an unprecedented step, New Star took out full-page ads in national newspapers to calm investors’ nerves. A colleague reminded me that Hollywood’s once “golden couple” film star Richard Gere and supermodel Cindy Crawford once took out a full-page ad in The Times to counter press speculation over their marriage.
New Star, along with its rivals, will be hoping that investors’ love affair with commercial property lasts a good while longer than Crawford’s and Gere’s marriage. Their split was confirmed just six months after the ad appeared.
Paul Farrow is money editor at the Sunday TelegraphMoney Marketing