Wealth managers reduce exposure to UK Property

Following the high-profile suspensions of the M&G and Prudential UK Property funds in 2019, UK wealth managers have significantly reduced their exposure to UK property as an asset class.

The latest FE fundinfo Adviser Fund Index (AFI), which is rebalanced twice a year, shows six adviser groups have removed IA UK Direct Property funds from their portfolios for investors across all risk profiles.

 
Ten funds in the sector were removed overall – the highest from one sector single in the index – with Threadneedle’s UK Property Authorised Investment IGA, L&G’s Property Feeder and M&G’s Property Portfolio funds among those to be discarded.
 
Oliver Clarke-Williams, Portfolio Manager at FE Investments, says: “The suspension of M&G and Prudential underlines the issue of liquidity in the sector and with the FCA looking at the nature of open-ended funds and investor redemptions more broadly, some wealth managers have evidently seen more trouble ahead for the sector.”
 
Elsewhere, the decline in popularity of targeted absolute return as an investment strategy was borne out in this AFI rebalance, with wealth managers removing six funds from the IA Targeted Absolute Return sector from their portfolios. Across the industry, absolute return funds have continued to struggle and as such Jupiter’s Absolute Return, LF Odey’s Absolute Return and Premier’s Defensive Growth funds were among those to lose their place in the index.

However, while exposure to UK property has fallen, the latest AFI rebalance reveals that the UK remains an important area of focus for wealth managers in the coming year. The IA UK All Companies, IA Equity Income and IA UK Smaller Companies sectors all saw wealth managers increasing their exposure in these areas, with 18, 9 and 6 funds respectively added to the index. Among those funds to be added were JPM’s UK Equity Core, Jupiter’s UK Special Situations and Threadneedle’s UK Mid 250 ZNA.
 
The continued strength of equities as an asset class both in the UK and abroad has also underpinned much of wealth managers’ thinking in this AFI rebalance. Both the IA Europe Excluding UK and the IA Global sectors (in which funds must invest at least 80% of their assets in European and Global Equities) also saw their exposure being upped, with 16 and 11 funds added respectively.
 
Clarke-Williams adds: “Equities have been an interesting story throughout 2019. Our panelists’ weighting in the asset class is largely a reflection of the impact of continuing low interest rates, which looks set to extend well into 2020. In terms of the UK, equities here have persistently lagged global markets and are sitting on fairly low valuations at the moment. The increased weighting in the index suggests that many wealth managers are hoping that now the uncertainty around Brexit appears to have diminished somewhat, UK equities will rerate in line with other developed markets.
 
“Overall, while last year was undoubtedly a tough year for some sectors, wealth managers largely saw 2019 as one of opportunity and this is reflected by the fact that we saw 137 funds added to the AFI, with just 57 removed in return.”