The IPD Global Quarterly Property Fund Index was up 9.7 per cent at the fund level for the 12 months ended September 2013 and 9.1 per cent at the direct property level (measured in local currency).
The fund level return was led by a strong 11.9 per cent return in North America, and 11.1 per cent in Asia Pacific, while Europe dragged overall performance with a return of 4.3 per cent.
The Q3 numbers confirm the upturn in fund performance, which began in June 2013. From a high of 14.2 per cent in March 2011, 12-month returns decelerated steadily to a low of 7.1 per cent in March 2013, but performance has gathered pace in June (8.5 per cent year-on-year) and September (9.1 per cent).
This fund level trend has followed the asset performance pattern. However, when comparing asset and fund returns, it is the first time since June 2011 that fund level returns are higher than asset level returns. Until now, performance had been too low to benefit from the leverage effect. Quarter on quarter, fund level performance surpassed asset performance in June 2013 (2.6 per cent v 2.5 per cent) and widened in September (3.3 per cent v 2.5 per cent).
The spread between fund and direct level returns is not even across regions. In the US and Asia Pacific, leverage boosted a strong direct performance. However in Europe, fund quarterly returns are still lower than direct returns, due to a combination of relatively low asset level returns and high levels of debt and cash.
The IPD Global Quarterly Property Fund Index underperformed property equities at 14.6 per cent (MSCI World Real Estate Index), and equities at 23.0 per cent (MSCI World Index). However, it performed better than bonds (JP Morgan GBI Global Composite 7-10 yrs), which only grew 0.7 per cent over the 12 months to September 2013.
Peter Hobbs, managing director and head of research, IPD, says: “Beyond its use in analysing market trends and providing performance benchmarks, the index provides valuable insights into drivers of individual fund performance including the attribution of drivers of returns from fund structure (including debt, cash and costs), as well as direct real estate.”
Although the index identifies funds with broadly comparable characteristics, important differences in the fund structures exist across regions. The North American and Asian funds tend to be larger than those in Europe, and they invest in bigger assets. Leverage also varies a lot across markets; it is less than five per cent in the UK, around 15 per cent in Asia Pacific and 25 per cent or above in North America and Continental Europe. These differences reflect long-standing local institutional preferences and demonstrate the difficulty of identifying an absolute set of criteria to define the style of fund across global markets.
The index includes 79 open-ended funds as at September 2013, covering over 5,200 individual assets with a gross asset value (GAV) of USD210bn. The index focuses on core real estate funds and reports performance on a quarterly basis, both at the level of the fund and its underlying assets.