Property is an asset class with a lot of questions around it, from big picture stuff around remote working’s impact, to the perennial challenges of changes to the interest rate cycle.
A glance at our database indicates the allocators we cover have scrunched up the exam paper and headed for the exit, rather than try to ponder the above.
The average exposure to property funds has fallen from 5 per cent at the end of June 2023 to the present level of 3.5 per cent, a move almost certainly the function of investor wariness around the outlook for the asset class as rates have risen.
This was echoed in the recent update to our sentiment tracker, where 42 per cent of respondents said they were negative towards property and only 5 per cent positive (the rest were neutral).
One DFM we spoke to said: "Property still offers a reasonable yield pick-up compared to other asset classes, as well as some income protection against inflation. However, there is also uncertainty surrounding several property types in a post-Covid world: the anticipated demise of the office and high street retail sectors could be overstated but current pressures on tenants will have long-term repercussions.
"We tend to favour more specialist parts of the property market enjoying structural growth, such as healthcare, logistics and digital infrastructure."
Another agreed the fundamentals were "challenging".
Property funds of course come in many shapes and sizes, some of which are very broad and some of which are very niche. The end result of this is that the allocators we cover own a wide range of products.
In the Reits space the most owned is TR Property, held by allocators, while the most owned property shares fund is L&G Global Real Estate Dividend Index, which appears in seven of the portfolios we cover, and bucked the trend of the past couple of years by actually picking up two new buyers in the final quarter of last year.
Honourable mentions should go to iShares Environment & Low Carbon Tilt Real Estate, which is owned by three allocators, Schroder Global Cities Real Estate, which is owned by four, and RM Alternative Income, which is a mixed bag of property and infrastructure and is owned by five.
Premier Miton are among the allocators with considerably more in property, at 8.5 per cent.
Neil Birrell, chief investment officer at Premier Miton, said: “The exposure to property is through UK and European Reits and specialist property companies which, as a group, are at valuations levels rarely seen.
"Clearly, they are interest rate sensitive, which is a positive when expectations of cuts are on the up and we are also seeing fundamentals improve with a slowing in the rate of falling capital values and rental growth picking up, particularly in the retail and industrial subsectors.
"Adding to that is a notable increase in consolidation, typically in smaller, externally managed Reits. All in all, the reasons to invest in the sector are becoming compelling, but as with all asset classes at present, being in the right area of it, is the key."
Of course another issue for the folks punting property funds has been the issues around withdrawals being suspended from open-ended funds every time the market has a snafoo, while the increasing obligations of scale in the wealth manager market mean the minimum ticket sizes at which products can be bought makes it a challenge to own property investment trusts.
All of that may mean there are structural impediments to wealth managers having significant exposure to direct property as an asset class, even if the current cyclical issues resolve themselves.
