With that thought comes another. How does today’s property focus differ?
There is no denying the long-term legitimacy of investing in technology. One simply has to look around to see the influence and growth in technology to determine its position in today’s society. So why is Aegon shutting its fund? At one point in the late 1990s, it had more than a couple of hundred million pounds in assets and was a popular fund. With the bear market of 2000-03 and the continued unpopularity of tech as a sector, the Aegon fund has shrunk to untenable size of less than £10m.
A lot of this can be put down to market sentiment. After all, it has taken years for the industry as a whole to entice investors back to the general equity market so it may be a bit much to expect them to invest once again in a technology fund.
Some of it also has to do with specific performance. All portfolios in the Investment Management Association’s tech and telecom sector, which has 15 constituents, recorded gains over three and one years to May 17, according to Trustnet figures. But some managed this feat over a five-year period as well although not the Aegon fund. Returns in the sector over a cumulative five-year period range from a low of -21 per cent from the Aegon portfolio and a high of 65 per cent from Close FTSE Techmark.
The closing of the tech fund – by no means the first (remember NetNet?) – is not just sentiment-related but also probably due to disappointing performance. This should say something about the dangers of jumping on an investment bandwagon. Money may be captured in the midst of the hype but to retain those assets performance must continue, not just in the asset class or sector alone but in the specific fund.
It is not hard to make the parallel between technology funds and current marketing trend which has seen property portfolios being launched at an rapid rate, reminiscent of 1999/2000.
There are some 35 property funds listed in the IMA’s specialist sector. Five feature track records of five years or longer, one has a three-year track record and 19 have been in existence for one year, with a further 10 less than a year old.
There is no denying the long-term investment story backing this trend but the question of a bubble has started to be mooted, to the degree that many economists, fund managers and professional investors are becoming wary of the sector. At the same time, the number of new retail funds entering the market and the amount of assets flowing into this sector continue unabated.
Psigma income manager Bill Mott says it is his least favoured asset class for the coming years and he is not the only fund manager to believe so. In February, Merrill Lynch’s global fund manager survey, which polls more than 300 retail and institutional managers, showed equities to be the most popular asset class and asset allocators, in particular, to be light on property, with 11 per cent saying they planned to decrease their real estate exposure versus 3 per cent who intended to increase their weightings.
Standard Life, which has several property funds, says its stance is to be light on property. It says: “Keen valuations and slower consumer spending in the UK are depressing the outlook for returns.”
In April, Scottish Widows Investment Partnership, which also has several commercial property vehicles, stated its view was to be was strategically underweight in UK property, favouring equities and bonds over the asset class. Threadneeedle also highlights its underweight position in property.
Yet the IMA reports that in the first quarter of 2007, the specialist sector was the most popular among retail buyers, with the presence of property funds firmly responsible for the influx in assets.
Criticism could be laid at the way in which the industry seems to be handling interest in this asset class. Built on the back of a long bear market in which property excelled, fuelled by developments like the creation of real estate investment trusts, property has been well placed for heavy marketing.
Perhaps the onus of highlighting this theme in a more balanced way, pointing out the risks and rewards, should be more on the media. On top of this, perhaps product providers should not be so quick to jump on an investment bandwagon and promote the benefits of a theme or asset class to the degree that it becomes difficult for the average investor to get a realistic outlook.
One of the main characteristics of the tech boom was that the average investor started to believe they could buy into almost any tech or dotcom company and make money.
The danger of this lesson does not yet appear to have been learned and this same mentality could be applied to property today, setting up consumers for another disappointment to the detriment of the industry as a whole.