Property outflows have returned after a brief respite in September, reaching £51m last month.
The latest figures from Calastone’s Fund Flow Index show net outflows in line with the average for the last year, but take total outflows for the year to date to more than £400m.
Calastone, the largest global funds network, said that outflow was marked by a sharp increase in selling activity, while the value of buy orders remained relatively steady compared to September.
This, it said, reflected a crunch in the bond-markets that has brought “a deepening sense of crisis to capital markets”.
It added that the outflows also reflected the decision of M&G to liquidate its Property Portfolio fund, which Calastone said had the effect of “knocking confidence in the sector”.
Edward Glyn, head of global markets at Calastone, said: “The open-ended property fund sector is under pressure for both cyclical and structural reasons. The structural factors relate to the difficulty of managing cash flows in an open-ended fund investing in an illiquid asset. A number of funds have exited the market in the last few years leaving fewer options for investors to consider. Since many pension-fund and ISA investors only use open-ended funds because the industry’s infrastructure favours this approach, it means the property asset class is becoming harder to access within these wrappers. That tips the scales towards outflows.”
September saw “modest” inflows, with funds adding a net £2.87m to their holdings. Calastone warned at the time that the inflows would not be “the beginning of a sustained turnaround”.
In addition, total outflows for Q3 stood at £115m, following outflows for Q1 and Q2 of £93m and £148m respectively. The year to date has seen outflows of £407m and inflows of just £2.87m. At this rate, outflows are expected to exceed 2022’s £535m.
Glyn added: “The cyclical factors are shared with other asset classes at present. Soaring bond yields are forcing a dramatic repricing of all kinds of assets, including property and that is driving investors towards safe havens like money market funds and cash, both of which now offer the highest income in years for little risk. The wider property market is also heavily debt-financed and faces the squeeze of higher funding costs at the same time as occupancy is under pressure.”
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