GLOBAL – US core open-ended funds have significantly outperformed their European and Asian counterparts over one and three years, according to IPD’s first global property fund index, launched today.
The data also suggest that the US and Asia performed similarly in terms of return per unit of risk, measured by volatility. It is an indication that mature markets are more efficient at managing risk and return, said IPD product manager Hélène Demay.
However, UK and mainland European funds outperformed their underlying assets, largely as a result of retail, office and industrial underperformance. Residential was the exception, albeit with limited exposure. But overall, the total return for underlying assets – which the index also measures – was 7.9% compared with 7% for funds.
The index covers 72 open-ended core vehicles with $172bn (€144bn) in assets under management.
Although IPD claims that the included funds are “broadly comparable”, Demay pointed to significant discrepancies. While North American funds are, overall, significantly larger than their European counterparts, there is significant in their regional variation in the amount of leverage funds are likely to use. For example, the average leverage of UK core funds is below 10%, for example – and 16 of the 28 UK funds included use no leverage – whereas mainland European funds may use up to 40%.
“Constructing any index, there is no question of where you start but where you’re going to stop,” said Mercer head of European real estate Paul Richards. “There are cultural differences between markets. Gearing is one of them.”
CBRE Global Multi-Manager portfolio manager Ivo de Wit said the index would prove useful for small and medium-sized investors. “Unless you’re a large investor – a sovereign wealth fund or a large pension fund – you have to go through open-ended funds,” he said.
The index could potentially expand to include vehicles such as relatively small Japanese private REITs, which are currently open only to domestic capital, according to IPD senior director Peter Hobbs.
Mainland European funds, which currently make up 8% of the index, will eventually make up 16%.
