After a challenging 2011 global property equity funds saw a sharp rebound in the first half of 2012, says S&P Capital IQ Fund Research in its latest sector trends paper.
The peer-group median fund was up 12.6 per cent in the first half of the year, in contrast to a 7.8 per cent decline in 2011 and a fall of 10.5 per cent in 2010.
Global real estate indices notched up positive returns in both the first and second quarters of the year, one of the few major sectors to do so. The resilience in the second quarter was principally propelled by developed Asia and especially China.
The search for yield has rendered prime real estate attractive in countries such as Germany, the UK and the Nordic areas, particularly relative to other asset classes, such as government bonds.
On the whole, the reviewed funds did not deviate significantly from their benchmarks at regional or subsector level. All were either neutral or overweight retail, and most were near to benchmark in residential. Country-wise, there was little notable variation.
The Robeco Property Equities Fund (upgraded to an S&P Capital IQ Gold grading), for example, purposely kept its regional weightings near to benchmark as the managers believe it is extremely difficult to call the cycle. They prefer to focus on identifying the best ideas within each region.
However, there was a general consensus among global property equity managers that the outlook for the sector is very uncertain. The key factors remain the pace of the US recovery across all sectors, and growth in China.
The positive news is that the US housing market is showing signs of recovery, with fewer distressed sales, tighter supply and declining mortgage rates. Both Jim Rehlaender (SISF Global Property Securities) and the managers of the Invesco Global Real Estate Fund noted the current relative strength of the West Coast, fuelled by IT groups hiring.