property Archives | International Adviser https://international-adviser.com/tag/property/ The leading website for IFAs who distribute international fund, life & banking products to high net worth individuals Tue, 09 Apr 2024 12:17:11 +0000 en-US hourly 1 https://wordpress.org/?v=6.7.1 https://international-adviser.com/wp-content/uploads/2022/11/ia-favicon-96x96.png property Archives | International Adviser https://international-adviser.com/tag/property/ 32 32 Spain becomes latest country to plan end of the golden visa https://international-adviser.com/spain-becomes-latest-country-to-plan-end-of-the-golden-visa/ Tue, 09 Apr 2024 12:17:11 +0000 https://international-adviser.com/?p=304833 Spanish prime minister Pedro Sanchez said yesterday (8 April) that  its government was to start the procedure to eliminate the granting of the so-called golden visa scheme which allows residence permits to be granted to foreigners who invest more than €500,000 in a home in Spain.

He made the comments during a visit to the municipality of Dos Hermanas to participate in an event on social housing, El Pais reported.

“We are going to take the necessary measures to guarantee that housing is a right and not a mere speculative business”, he said.

“Today, 94 out of every 100 such visas are linked to real estate investment…in major cities that are facing a highly stressed market and where it’s almost impossible to find decent housing for those who already live, work and pay their taxes there,” Sanchez said.

He added that the government would launch the process to eliminate the scheme in today’s (9 April) weekly cabinet meeting after studying a report submitted by the Housing Ministry

The programme awards non-EU citizens investing at least €500,000 – without taking out a mortgage – in Spanish real estate a special permit allowing them to live and work in the country for three years.

The Spanish golden via was launched in 2013 as part of the national strategy to boost the Spanish economy and increase foreign investment.

 

 

 

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Open-ended property funds: Is the future hybrid? https://international-adviser.com/open-ended-property-funds-is-the-future-hybrid/ Mon, 26 Feb 2024 11:05:43 +0000 https://international-adviser.com/?p=304631 The struggles that open-ended property funds are facing will only worsen over time unless changes are made, according to fund selectors, who warn that the IA UK Direct Property sector is on borrowed time as more portfolios lean towards adopting a ‘hybrid’ model.

Earlier this week, Legal & General Investment Management (LGIM), which houses the sector’s largest Property Authorised Investment Fund (PAIF) at £1.3bn, proposed transitioning the fund towards a hybrid investment approach, opting to hold up to just 45% in direct property and 45% in Real Estate Investment Trusts (REITs) to hedge against illiquidity risk. The remaining 10% will be held in cash.

James Crossley, LGIM’s UK head of wholesale, said the transition would be “in the best interest of investors” and recommends that they vote in favour, ahead of a shareholder meeting in April. He added: “As a property sector leader for over 16 years, we are well positioned to continue providing balanced property exposure to investors.”

“Relative to other asset classes, we feel that the UK property sector remains an attractive diversifier in any balanced portfolio, and is well positioned for investors with long-term horizons.”

The changes were first openly discussed in November last year, weeks after M&G announced it will wind up its £565m open-ended property portfolio due to “declining interest in open-ended daily dealing property strategies” from UK retail investors. Just one day later, Canada Life shuttered its PAIF after assets under management (AUM) more than halved from £254m to £102m, leaving it “no longer commercially viable”.

Direct property funds have suffered a torrid time over recent years, having been forced to temporarily close after the UK’s EU referendum and during the pandemic to stem outflows, which would have otherwise overtaken the funds’ ability to sell assets and thereby return capital to investors. The number of PAIFs in the Investment Association have slowly dwindled, with Aegon and Aviva taking their offerings off the market in 2021, and Janus Henderson liquidating its strategy in 2022.

The struggles faced by the sector led to a consultation by the FCA on the “liquidity mismatch” of open-ended property funds in 2020, which resulted in the regulatory body creating the Long-Term Asset Fund (LTAF), which requires a notice period of between 90 and 180 days before an investment can be redeemed.

However, this has not fixed the sector’s problems, nor its reputation in the industry. According to data from FE Fundinfo, 10 out of 13 funds (including the soon-to-be-closed M&G Property Portfolio) in the IA Direct Property sector have shrunk in size over the last three years – by an average of 40%. Among these 10, falls in assets range from 7.8% for VT Redlands Property Portfolio, to an eye-watering 74% for M&G.

And, in order to combat liquidity risk, many funds in the sector hold significant cash weightings. This has come under fire from many investors, who argue that more of their cash should be put to work given the ongoing charges they pay.

Could the future of direct property funds be a hybrid model, and is LGIM paving the way for other existing PAIFs to restructure their portfolios?

Oliver Creasey, head of property research at Quilter Cheviot, says he is a “long-term fan, buyer and advocate” of hybrid property funds, holding positions in CT Property Growth & Income and TIME:Property Long Income & Growth.

The former, which is co-managed by Marcus Phayre-Mudge, Alban Lhonneur and George Gay, was launched as an OEIC in 2015, although Phayre-Mudge has been running the strategy since 2011. The latter, which is run by Roger Skeldon and Andrew Gill, was launched in September 2021.

“Both of these funds have approximately a 60:40 ratio to REITs,” Creasey explains. “So, in principle, [switching to a hybrid portfolio] is a good idea from our perspective – it is good to see a firm willing to innovate and look for a solution to the regulatory issue being faced, rather than throwing in the towel.”

But of course, a consideration for existing funds is whether those invested in them will welcome such a significant change to their investment proposition.

“The specifics are a little more complicated; we also have investments in LGIM’s property fund, and because of the diverse nature of our clients, not all will wish, or be able, to hold a hybrid fund – depending on how it looks once the idea is solidified,” Creasey explains. “We will have to wait and see exactly what changes are proposed before we can definitively say it’s a good idea, and whether it is suitable for a particular client or service. But it is a sensible move in principle.”

Darius McDermott, managing director of FundCalibre, also holds Legal & General UK Property and says “it appears to be a sensible option”.

“LGIM always have had a strong property team and offering. Shifting to a hybrid solution will ensure greater liquidity than historical norms, appealing to investors and regulators and potentially incentivising continued open-ended access to the asset class,” he reasons.

Meanwhile, Ben Yearsley, director of Fairview Investing, says he has been buying hybrid property funds for “six or seven years”.

“It gives you the best of both worlds – full property exposure alongside liquidity”.

AUM difference

However, the difference in assets under management between direct property funds and their hybrid counterparts is significant. Despite having a track record of more than 10 years, CT Property Growth & Income is £319m in size, while TIME:Property Long Income & Growth is just £15.8m. This is materially less AUM combined than the LGIM fund, alone.

Rob Morgan, chief analyst at Charles Stanley Direct, says the mandates are less popular among investors because they “potentially falls between two stools for some fund buyers”.

“It is neither purely physical property nor purely listed real estate equities – although the hybrid approach does offer an interesting middle ground, and a pragmatic way forward for LGIM,” he reasons.

“Generally buyers have taken the view to allocate to one or the other – direct property or through REITs or funds of REITs, or to mix and match according to allocation policies.”

If funds opt for the hybrid model but don’t stick to set REIT and direct property allocations, however, he warns this could “create some uncertainty around how performance and risk might vary over time”.

Ryan Hughes, investments director at AJ Bell concurs, explaining that cash and REIT weightings could fall if a fund experiences significant outflows and no set proportions are put in place.

“What L&G seem to be proposing is to ensure this liquidity buffer is significant in size so to reduce the risk of it drying up,” he says. “While this makes sense, it still isn’t addressing the underlying problem of holding illiquid assets in a daily traded fund.”

McDermott believes hybrid funds are less popular because they have a less established track record, while Creasey says: “I like to think it is an awareness issue, but L&G will have to spend some time educating existing and future investors as to what this idea means in practice and why it makes sense.”

Classification

The other issue that arises is based on sector classification. In 2018, the Investment Association divided its Property sector into two: IA UK Direct Property, where included funds must hold at least 60% in physical UK property over rolling five-year periods; and IA Property Other, which includes funds which invest in property company shares, or property funds and investment trusts.

And, as it stands, the IA’s Sector Committee considers 10 funds to be the minimum constituents in any one sector in order to make it viable.

A spokesperson for the IA says: “The IA seeks to review existing sector(s) from time to time. This is typically due to factors that suggest that something may have changed in the market, impacting on the number of funds that are like for like and could be usefully classified into a new sector to aid comparisons for end investors.

“Sometimes it is necessary to sub divide or close existing sectors, and on other occasions new sectors are created.”

The sector could continue to shrink by default, with a number of its constituents already falling below the 60% minimum direct property threshold. Aside from funds which are only available to institutional investors, this could leave just two retail-friendly PAIFs standing: Abrdn UK Real Estate and CT UK Commercial Property.

Charles Stanley’s Morgan says: “It feels like the property sectors should probably be merged at this juncture as a sector average comparison here is increasingly meaningless.”

FundCalibre’s McDermott adds that an “IA sector comprised of only two funds is not viable”.

“It is likely that Columbia Threadneedle and Abrdn will face challenges in maintaining their property funds in their current PAIF format. If they do, they will potentially encounter stricter liquidity requirements, making them less appealing to investors seeking daily liquidity.”

Columbia Threadneedle and Abrdn were approached for comment.

The future of PAIFs

Looking over the medium-to-long term, some fund buyers believe the longevity of traditional PAIFs is in jeopardy.

Quilter Cheviot’s Creasey says: “I feel that there is still a market for daily-dealt direct property, but it doesn’t suit all investors/circumstances. The lack of choice, plus the regulatory issues overhanging the sector do limit the appeal.

“I think the sector can survive, but whether it will or not is a different matter. It certainly requires regulatory certainty, but we are a long way away from a new daily-dealt fund being launched. Some investors will hope the remaining funds stick around, but few would blame them if they don’t.”

Both Fairview’s Yearsley and AJ Bell’s Hughes stopped using pure direct property funds some time ago.

“Why would you own them with the threat of suspension and only holding approximately 70% in physical property?” Yearsley questions. “Physical property and daily dealing don’t mix. One of those two variables has to change – it doesn’t look like the platforms will allow monthly dealing, therefore it has to be the funds changing.”

Hughes says there “has to be trade-off between illiquidity and access” and “investors have to accept this fact”.

“Given what has happened to the open-ended property space, it is clear investors prefer liquidity over access and therefore we have seen an increase in investor demand for listed property assets,” he says.

“This trend seems to have momentum, with only a few lone voices fighting against it. In our investment team, we stopped using illiquid, open-ended property in 2019 as we saw the risk of suspension as too great and moved solely to investing in listed property securities.

“With the open-ended space almost shrinking to nothing, I suspect the vast majority of investors either have or will follow suit.”

That being said, AREF – The Association of Real Estate Funds – believes the headwinds facing the sector have been overstated.

During an online presentation at the end of last year, its managing director Paul Richards acknowledged previous difficulties with funds being forced to shutter, but argued that these were rare occurrences relative to the lifecycle of open-ended property funds. He added that PAIFs offer other benefits, including low correlation with other asset classes and differentiated income streams.

On hybrid funds, Richards says: “ It’s a fascinating move that will provide those investors who want daily liquidity with continued access to the underlying real estate assets. The benefit of the open-ended property funds holding direct real estate, be they daily-, monthly- or quarterly-traded, is that they provide lower volatility than listed shares and a level of diversification against the wider listed equity market. This is especially useful if you’re a large institution with little interest in daily liquidity.

“But if you need daily liquidity – perhaps because you’re a DC pension scheme whose platform can’t or won’t accommodate monthly or quarterly dealing, the daily-traded, open-ended funds remain. They provide daily liquidity without the significant volatility of REITs.”

Morgan concurs that REIT exposure is not necessarily the ultimate fix to the property fund conundrum, reasoning that he is “still wary of having a meaningful proportion of illiquid assets making up a daily dealing fund”.

“REITs themselves aren’t necessarily highly liquid, especially in times of market stress,” he points out.

However, McDermott expects to see more hybrid funds come to market, primarily from firms with existing property teams and “proven expertise”.

Yearsley adds: “I think hybrid property funds are great. I don’t know why other firms don’t launch them.”

Creasey, however, says it is “too early to say” whether this will become a reality. “Options have existed for a while and haven’t captured investor imaginations yet. The structure is very interesting to us, but it is slightly more complex and investor education will be key.”

This article was written for our sister title Portfolio Adviser

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Chinese property sector woes continue to weigh on fund performance in January https://international-adviser.com/chinese-property-sector-woes-continue-to-weigh-on-fund-performance-in-january/ Thu, 01 Feb 2024 12:22:40 +0000 https://international-adviser.com/?p=45042 The malaise facing the IA China fund sector continued into the first month of 2024 as the sector suffered the biggest losses of all IA sectors in January, with the average fund falling 9.2%, according to FE Fundinfo data.

The Chinese property sector, which makes up around a quarter of the country’s economy, has been a particular drag on returns over the last year. In January, one of the sector’s leading players, China Evergrande, entered into a forced liquidation.

This was seen in the month’s worst performing individual funds, with the £14.1m Redwheel China Equity, £203.3m Baillie Gifford China, and £5.8m JPM China all among the bottom 10 for returns. Climate strategies, such as Baillie Gifford Climate Optimism and Active Solar also struggled in January.

Funds – One month (bottom 10) Return %
Redwheel China Equity -16.96
Baillie Gifford Climate Optimism -16.75
Active Solar -16.68
Amati Strategic Metals -16.66
Baillie Gifford China -13.42
JPM China -13.18
Guinness China A Share -12.66
GMO Climate Change Select -12.31
Matthews China Small Companies -11.87
GMO Climate Change Investment -11.85
Source: FE Fundinfo

In contrast, IA North America and Technology were the two best-performing sectors, up 3% and 4.8% respectively.

Ben Yearsley, director at Fairview Investing, said. “These two are so intertwined that it does distort the picture of US equities. Microsoft is again the world’s largest company with a value just under $3trn. But with Apple, Alphabet and Amazon also in the top ten, a tech fund, a Nasdaq tracker, an S&P tracker and a MSCI World tracker look very similar and perform in tandem.”

See also: Global sustainable funds see first quarter of outflows

He added: “The positive equity stories of 2023 all continue with tech, India, and Japan all starting 2024 with a bang. Two of those areas look pretty expensive – then again they almost always do. Japan remains one of the most interesting stories with corporate change and more shareholder awareness helping drive markets. On the other side, China can’t seem to escape the doom loop – Beijing need a big bang to pull markets from historic lows.”

Yearsley pointed out that, for a brief period of time in January, markets regained some confidence after Beijing announced stimulus measures. However this confidence evaporated, with the Hang Seng index finishing the month down by more than 9%.

“Contrast that with Japan where the Topix put on almost 7% – the BoJ has kept the world’s last remaining negative interest rate policy and wants inflation. Despite the excellent returns from Japanese equities many fund managers are confident on future returns and thinking this is just the start of a sustained bull run. The FTSE had a lacklustre start to 2024 falling 1.27%.”

Oxeye Hedged Income was the top performing fund, returning 9.5% in January. Yearsley noted the fund has regularly topped and tailed the monthly performance tables over the past few years.

Jupiter’s India-focused offerings, Jupiter India and Jupiter India Select, both performed strongly by returning 8.7% and 8.3% respectively. The average IA India fund returned 1.8% over the month.

Funds – One month (top 10) Return %
Oxeye Hedged Income +9.48
Axiom Concentrated Global Growth +9.39
AQR Sustainable Delphi Long Short Equity +8.86
Polar Capital Global Technology +8.84
Lord Abbett Innovation Growth +8.79
Jupiter India +8.74
AQR Style Premia +8.31
Jupiter India Select +8.27
Nomura Japan Strategic Value +8.21
Herald Worldwide Technology +7.91
Source: FE Fundinfo

This article was written for our sister title Portfolio Adviser

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Columbia Threadneedle Fund Watch: 39 funds achieve top-quartile gains over three years https://international-adviser.com/columbia-threadneedle-fund-watch-39-funds-achieve-top-quartile-gains-over-three-years/ Wed, 17 Jan 2024 14:41:44 +0000 https://international-adviser.com/?p=44950 Columbia Threadneedle’s Fund Watch survey for Q4 of 2023 marked 39 funds as achieving top-quartile returns over a three-year stretch, compared with just six funds achieving the status a year ago.

The 39 reaching the status make up 2.8% of funds, a decrease from the 3.9% of funds reaching a top-quartile performance in Q3 of 2023. Historically, the percentage of funds with top-quartile status has sat between 2-4%. While the number of specific funds with top-quartile performances decreased in the final quarter of the year, only two of the Investment Association’s 56 sectors failed to achieve positive total returns, on average.

Kelly Prior, investment manager in the multi-manager team at Columbia Threadneedle Investments, said: “Consistency faltered in the fourth quarter as the mood music again took on a different tempo. Having failed to respond to expectations of a change in rate outlook for much of the year, the final Federal Reserve meeting of 2023 offered a more dovish tone.

The Japan sector had the largest number of funds which reached top quartile, with 12.3% of the funds sitting within that group. Japan also had 32.3% of funds that performed above the median over three years.

“Japan proved to be something of an outlier in 2023,” Prior said. “A market often forgotten due to its ever-decreasing importance in global indices, it continues to prove a rich hunting ground for active management.”

See also: Square Mile: Nine funds poised for success in 2024

The two sectors which recorded negative performance in the fourth quarter of 2023 were China/Greater China, which fell 8.4%, and UK Direct Property, which lost 0.2%. The greatest returns came from the Latin America sector, up by 12%, and the Technology & Telecom sector, returning an average of 11.8%. Property Other also saw strong gains, with an increase of 10.3%.

“As we peer into our tea leaves for inspiration for the year to come it strikes us that we may be nearing a time to be brave. China, the standout underperformer this quarter, looks ripe for a change of sentiment while India is priced for perfection, and if private equity needs to start deploying capital, then smaller companies are viewed as a steal, particularly in the UK,” Prior said.

“High yield has been fabulous but when floating rates start to bite there will be winners and losers, and emerging market central bankers have been ahead of the curve in hiking and then cutting interest rates while their developed market cousins sat on the side lines. Indeed, a change in the fortunes of the ‘Magnificent Seven’ stocks could result in a change in consistency outcomes for US equity funds too.”

This article was written for our sister title Portfolio Adviser

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Advisers must consider property wealth in light of Consumer Duty https://international-adviser.com/advisers-must-consider-property-wealth-in-light-of-consumer-duty/ Fri, 20 Oct 2023 10:38:57 +0000 https://international-adviser.com/?p=44550 The Financial Conduct Authority’s (FCA) new Consumer Duty rules has set a higher standard of protection across the UK financial services sector. Which has had big implications for retirement advice, already the focus of an ongoing thematic review by the FCA, writes Roland Whyte chief executive and founder of Nokkel.

Going forward, financial advisers will need to have a much deeper understanding of a client’s finances and assets in order to deliver the most valuable and tailored advice. One long-neglected element of this full picture is an understanding of a client’s property wealth.

The urgency cannot be overstated. According to Scottish Widows’ latest Retirement Report, a third of Brits may retire without enough to pay for essential bills, with planning complicated by economic uncertainty, rising interest rates and the cost-of-living crisis.

Pension income alone is no longer enough. People need a clearer picture of the full extent of their finances if they are to retire with enough money, and property wealth is a significant factor.

Property, pensions, and the problem

According to the Office for National Statistics (ONS), outside of private pensions, more UK personal wealth is accumulated in property than anything else.

Yet while advisers often gather property wealth information as part of their fact-finding process, there is huge variation in how this information is incorporated into advice, if at all.

A pensions crisis looms, and property wealth is a sleeping giant.

Of course, it’s easier said than done. There is a significant challenge for advisers such as a lack of consistent and reliable property data upon which to base robust advice.

For example, an adviser may need to guide a client on whether it is more tax-efficient to draw down from their pension or release equity from their property investments. This is exceptionally difficult without access to meaningful valuations of the properties in question.

Connecting the dots – property data and its use in financial advice

For decades, vast amounts of property data have been largely siloed and underutilised. A lack of data sharing across different players and parts of the industry has led to difficulties in harnessing it for actionable insights. This has in turn hindered financial advisers when it comes to integrating property wealth insights into financial planning.

However this is changing, market players with huge amounts of data, like local councils, HM Land Registry, property-selling platforms, and financial institutions, are working to bring transparency to the industry.

This is being driven from the top – through the Geospatial Commission’s plans to improve the UK’s property data system and HM Land Registry’s plan to digitise the industry and empower better data sharing.

The Home Buying & Selling Group also recently launched its Property Data Trust Framework 2.0 to allow different players to share data in a trusted way, which is being compared to the open banking boom in financial services. This is all good news for financial advisers that need to start integrating property wealth into financial planning.

Additionally, while it is necessary to break down the silos restricting traditional property data points, non-traditional data points are also powerful drivers of meaningful valuations. A McKinsey study shows that when predicting house prices, nearly 60 per cent of the prediction power can come from non-traditional variables, such as data on surrounding services like shops, schools, and even coffee shops. With so many elements necessary for accurate house valuations to support conversations about property wealth, it is understandable that this topic has taken a back seat in advice conversations.

Integration issues and harnessing actionable data

While there has been progress in making reliable and accurate data available, financial advisers still have a property data integration problem. Without the ability to integrate property wealth insights into advisory software, advisers’ ability to deliver against the new Consumer Duty rules is hampered.

Advisory firms use different combinations of back-office software, with firms using an average of five systems in the process of giving advice. A report from Origo found that 85 per cent of advisory firms believe that a lack of integration is a serious cause of inefficiency within their businesses.

Only by stitching all the data points together, can we be assured of quality property valuations, which are essential to get a complete picture of a client’s assets and overall wealth. Naturally, there is growing appetite from the adviser community for technological solutions to enable property data to be better incorporated.

Clients not having enough money for retirement is not only an immediate cause for concern, but an issue that may plague generations to come. With regulation increasingly focused on protecting consumers, property wealth is essential to gaining a more complete understanding of a client’s financial situation and make informed retirement decisions.

However, to turn this into a reality, progress in deciphering relevant insights from a growing pool of property data must continue, as well as addressing the issues with incorporating this data into accurate advice.

In a competitive and increasingly regulated environment, clients not only expect more, but have a right to receive it. Advisers that connect the property data dots and gain a deeper understanding of their clients’ financial situations will be the ones who don’t fall short of Consumer Duty requirements and thrive in the long run.

This article was written for International Adviser by Roland Whyte, founder and chief executive of Nokkel.

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