Property fund outflows slow in January
Property funds enjoyed a month of relative respite in January, according to the latest Fund Flow Index (FFI) from global funds network Calastone.
This followed a torrid December, which saw fund outflows surge across the sector following the suspension of trading in one of the UK’s largest property funds. Outflows did continue, but at GBP78.1 million, they dropped to their lowest since May 2019, well below the average monthly redemption rate of GBP178.8 million since flows turned negative back in October 2015. In December, a punishing GBP328.6 million left the sector.
Even so, January represented a record sixteenth consecutive month of outflows and took the total value of capital withdrawn from property funds to GBP2.9bn since October 2018. In those sixteen months, investors have taken out GBP1 in every GBP12 they had invested in property funds.
Calastone’s FFI: Real Estate rebounded to 38.9, also its best reading since May 2019, though it remained well below the neutral 50 level where fund inflows balance out fund outflows.
January’s sharp improvement in the net outflow was not, however, thanks to an uptick in purchasing activity. Rather, it was driven by a steep reduction in selling. The value of redemptions dropped by two-thirds in the month. The poor publicity for the sector meant that buying activity actually fell further in January however, down to just GBP137 million, the lowest since September 2016, when many funds in the sector had suspended trading following sharp outflows in the aftermath of the Brexit referendum. Thanks mainly to the drop in buying activity, overall trading volumes were also significantly lower in January, around two-fifths below than the monthly average over the last three years.
Edward Glyn, Head of Global Markets at Calastone, says: “The real and present danger of contagion across the whole property fund sector seems to have been contained, but it is not out of the woods yet. From a cash-flow perspective, sharply lower redemptions give fund managers valuable breathing space to rejig the portfolio and rebuild liquidity buffers, but a buyers’ strike leaves the sector vulnerable to any further negative news flow in the short term.
"The fact remains that real estate is a fundamentally important asset class with a well-earned place in investor portfolios. It’s well suited to a long-term time horizon; it’s not volatile, nor is it especially highly correlated with stock markets, and so it brings some diversification benefits, as well as enjoying a relatively high yield in a world where investment income is hard to come by given the prevailing level of interest rates. Investors shunning property do risk throwing the baby out with the bathwater.”