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Given the property markets’ dependence on the scale and sustainability of the economic recovery, fund managers remain cautious about the outlook for property equities funds, says Standard & Poor’s Fund Services in its latest review of the sector.

“The first six months of 2010 have proven sluggish in terms of fund performance, but property markets themselves saw some recovery at the start of the year,” says Susan Sworn, lead analyst at S&P Fund Services. “However, this has been very uneven, regionally speaking.”

This has been particularly true of the residential market, where developing markets have been strong while developed markets have lagged. However, within this, the US looks to be on an improving trend.

Over 2009, regions, markets and sub-sectors showed clear variations in performance. 

“Within the funds that we cover, managers' reactions to challenging markets differed,” Sworn says.

By ways of examples she offers Fidelity Funds Global Property Funds, where manager Steven Buller tilted the portfolio from a defensive to a more aggressive stance following the Lehman collapse in 2008. 

“Buller focused on stocks that had been hit by market concerns on loan-to-value and refinancing fears, which left him well positioned when markets rallied in March 2009.”

On the other hand, the team managing the ING Global Real Estate Fund maintained a defensive positioning throughout 2009.

“This turned out to be a less successful strategy, with the fund sharply underperforming the peer group median over the year as a whole,” Sworn says.

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