UK balanced funds outperform specialist vehicles: AREF

UK balanced property funds outperformed specialist funds for the third consecutive quarter in the first three months of 2012, according to the Association of Real Estate Funds’ (AREF) Investment Quarterly (IQ) for the period. This pattern follows eight consecutive quarters of specialist funds outperforming balanced funds.

The UK PPFI (all pooled property funds index) delivered a quarterly return of 0.7% in Q1, down from 1.2% in the fourth quarter of 2011. This marks the fifth consecutive reduction in the quarterly return rate since the peak of 2.7% in Q4 2010.

The funds covered by the report had a total net asset value of £28.2 bn (EUR 35.5 bn) at end-March, compared with £33.4 bn in Q3 2011. New money raised in Q1 2012 amounted to £167 mln which is the lowest level since Q3 2003. Redemptions amounted to £61 mln in the first quarter of 2012, the lowest figure since Q4 2004. This resulted in positive capital net flows of £106 mln, following two quarters of negative flows.

John Cartwright, chief executive of AREF, said: 'The continued trend of balanced funds outperforming specialist funds is expected in a relatively low return environment. Also, specialist funds have tended to use higher levels of gearing, which is now acting as a drag to performance.'

'The other notable trend, of an increasing number of funds reporting negative capital returns after an apparently strong recovery in late 2009/early 2010, has echoes of the double-dip recession being reported in the wider economy,' he said.