UK - Another year, another set of results and another year of outperformance by the property sector.
The IPD monthly figures for the year to December indicate a return of 10.5% outperforming, albeit marginally, the return on gilts at 10.3%, which had a good last six months, and equities which continue to remain disappointing at -22.7%.
The Pooled Property Fund Indices compiled by IPD for HSBC and the association of property unit trusts has also just published its results for the year to December, which indicates an annual return of 8.5% for all property unit trusts and 8.8% if the insurance managed funds are included.
Over the longer period of three years – perhaps the best measure of performance – the returns are 9.1% and 9.4% respectively.
So why is there a differential between the two property indices?
“The answer, to a degree, lies in the respective sector weightings of each index, itself an aggregate of the underlying fund weightings within the index,” says the Association of Property Unit Trusts (APUT).
“As the chart shows the pooled funds have a significantly higher weighting to central London offices (15.4% v 6.6%), an area where supply has been dramatically rising and demand falling resulting in negative rental growth and negative capital value movements.
“Indeed the IPD Monthly Index confirms that annual returns for this part of the market are just 3.4% and, therefore, a significant drag on overall performance.
“By contrast those funds holding a higher weighting to retail, including retail warehouses and shopping centres will have seen outperformance with IPD estimating annual returns on this part of the market in excess of 13%. While the return on the pooled funds may not be as sparkling as in previous years, it is all relative.
“One suspects that if you had offered most pension funds managers 8.8% at the start of the year or 9.4% over three years they would have grabbed it with both hands!
“Pleasingly many have, with many funds recording a net inflow of new money.
“The question on everyone’s lips is: what will 2003 bring?
“Much perhaps depends upon the outcome or potential outcome of conflict in Iraq, but with gross income yields on property unit trusts of around 5%, it is not a bad place to start.”
The top stories this week were the High Court's decision to block the £12bn annuity transfer from Prudential to Rothesay Life, and a separate court ruling that 'raises the bar' for pension rectification exercises.
Guaranteed minimum pension (GMP) equalisation has soared to the top of pension schemes' to-do lists, with 58% stating it is a priority project, research from Equiniti has revealed.
Professional Pensions is holding its defined contribution (DC) conference on 4 September.