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Door closing on double-digit property returns, says M&G

M&G is introducing its first retail property fund although it warns that returns from the asset class are likely to drop back below double digits in the next few years.

The M&G property portfolio is already close to being fully invested, with 400m of existing properties moving across from parent group Prudential. It will be managed by John Cartwright, who runs M&G’s offshore property fund.

Cartwright says returns are likely to dip back to the longer-term trend of around 8 per cent over the next couple of years. But he says there are bright spots in the market, such as the re-emergence of rental yield growth in the office sector.

M&G say the fund will be differentiated from most onshore property vehicles by avoiding holding property shares for liquidity. It will hold less than 10 per cent in cash but will look to take advantage of the 10 per cent borrowing facility available to funds and rental inc- ome to fund redemptions.

The portfolio has 65 holdings diversified geographically around the UK and by sector. It is underweight in retail property due to concerns about low growth but is overweight in offices and industrial property.

Cartwright says, while pockets of office rental yield growth can be found around the country, overcapacity in the London office market is reducing and stronger returns can be expected in the next couple of years.

Minimum investment is 1,000. There is a 5 per cent initial and 1.5 per cent annual charge. Commission is 3 per cent initial and 0.5 per cent trail.

Cartwright says: “The market has been performing very slowly. Our expectations are that it will return to longer-term trend levels over the next couple of years.”

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