OPM Fund Management has reintroduced bricks and mortar commercial property funds into the OPM property fund for the first time since launch in 2007.
The fund originally combined bricks and mortar funds with global Reits to achieve higher growth than bricks and mortar funds, with lower volatility than global Reits. As markets became volatile and property prices fell, some bricks and mortar funds started to impose redemption restrictions and OPM shifted its portfolio towards global Reits due to concerns about liquidity.
OPM now feels bricks and mortar funds are attractive again and currently has around 13 per cent invested in them. Around 7 per cent of the fund is invested in reverse convertibles and the remainder is in global Reits.
The company says there is now a fair amount of activity in the commercial property sector, including a lot of interest from foreign buyers.
Commercial property prices have also fallen and do not reflect the optimism of an early recovery, which has created s elective investment opportunities in bricks and mortar.
The relationship between rental yields and 10-year gilts is another factor that has attracted OPM to this part of the sector. Historically, commercial property yields have been 2 to 2.5 per cent above 10-year gilts but this has widened to around 4.5 per cent. OPM sees this as a healthy cushion for when quantitative easing ends.
OPM fund manager Tony Yousefian says: “A margin of 2 to 2.5 per cent has been enough to get excited about but it is even wider now. That is why we are starting to warm up on bricks and mortar. We have chosen M&G property and Threadneedle property for our bricks and mortar exposure.
“We are more than happy with M&G property because the void rate is very low, it has a stable tenancy list and properties are let on long-term leases. Threadneedle has a superb property team. Its property fund is relatively new and it carries a fair amount of cash, which means it can buy attractively priced properties.”