UK property funds turn corner

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Beleaguered UK property funds delivered their first positive quarterly returns since the onset of the financial crisis in the three months to September, IPD, the data provider, will say on Monday.

Unlisted pooled funds produced average returns of 1.7 per cent in the third quarter, their first gains since the second quarter of 2007, having chalked up cumulative losses of 48.8 per cent in the interim.

The losses, well ahead of the 14.7 per cent fall recorded during the 1990-92 recession, erased all the gains of the IPD UK Pooled Property Fund Index since September 2003. However, IPD is cautiously optimistic that further gains are likely.

“After two years we have pretty much got to the bottom of where we are going to get to. We may bounce along the bottom for a while, but I can only see an upward trajectory,” said Cameron McVean, head of fund services.

Some 50 of the 61 funds returned to the black in the third quarter, led by ING UK Property Income, which made 14.4 per cent, and the UBS South-East Recovery Fund, The Leisure Fund and the Henderson UK Retail Warehouse Fund, which all cleared 12 per cent.

However, The X-Leisure unit trust crashed 52.4 per cent in the quarter, taking year-to-date losses to 76.9 per cent, while The Industrial Trust lost 7.2 per cent and the APIA Regional Office Fund 6.7 per cent.

In spite of the partial recovery, the index is down 14.3 per cent year to date, worse than the 6.6 per cent decline in the underlying property market due to funds’ use of gearing.

The pooled property fund sector remains a shadow of its former self, with the 61 funds tracked by IPD now boasting combined assets of £19.5bn ($32bn, €21bn) half the £39.2bn they held at the end of 2006. However, Mr McVean said there was “anecdotal evidence of quite a lot of money washing back into property”, particularly from retail investors.

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