Rising interest rates and a poor outlook for the economy have continued to impact investor sentiment at the start of 2023, with UK property funds marking a sixth consecutive month of outflows.
Investors sold a net £48.3 mln (€54 mln) of their holdings in January, according to the latest data, continuing a long-term trend of outflows evident since mid-2018, punctuated only briefly in mid-2022 with a brief flurry of buying.
Counterintuitively, the value of buy orders rose to its highest level since August - reaching £98 mln - but selling pressure also rose month-on-month to £146 mln in January. This mismatch caused net outflows to rise.
Edward Glyn, head of global markets at Calastone said: 'There is no end in sight for property fund outflows for the time being, despite the limits placed on redemptions.
'Investors are re-evaluating the prospects for the property market in the face of higher interest rates and expectations of a recession in the UK.
'After raising rates on Thursday, the Bank of England has raised hopes that interest rates may be at, or at least near, their peak - but outright cuts are some way beyond the horizon yet. It’s hard to see a decisive turn of sentiment until they begin.'
By way of comparison, since 2015, investors have sold £7.3 bn of UK-focused funds and bought £58.0 bn of international ones.
Global funds enjoyed inflows in January as world markets continued their rebound. Fixed income funds, meanwhile, saw the second highest inflow on record in January, reflecting the allure of higher yields and hopes for falling inflation.
Glyn warned that restrictions might be introduced in UK markets in the near term. 'The imposition of restrictions on redemptions is entirely sensible in the short to medium term as this aligns the structure of property funds with the liquidity profile of the underlying investment.
'But investors do not like these limits and this may damage the sector longer term. There’s no easy option. Those who opt for closed-ended investment trusts may be sure of liquidity but this comes at the cost of big discounts to asset value in bad times.
'The real answer, of course, is that investors should treat property as a long-term investment that they hold throughout the economic cycle, rather than attempting to titrate their exposure with every drop of economic news.'
