Henderson UK Property and M&G Property Portfolio are the two most popular funds with multi-manager and discretionary fund managers (DFMs), according to research by Harrington Cooper, after professional investors lifted exposure to property at the end of 2015.
The Harrington Cooper Proprietary Asset Allocator Tracker report for the final quarter of 2015 shows that the average multi-manager and DFM balanced portfolio had 4.83 per cent in property during the period, which represents a 27 basis point increase in their exposure.
Equities remain the asset class in most favour with the professionals, as the average exposure here to 57.05 per cent – up 80 basis points on the previous quarter. Fixed income allocations stand a 20.74 per cent after being trimmed by just over 1 percentage point, but the weighting to alternatives increased 26 basis points to 11.19 per cent.
Asset allocation analysis Q4 2015
Source: Harrington Cooper
Harrington Cooper's report analyses the top 10 holdings of 32 multi-manager and DFM portfolios, with combined assets under management of £11.1bn, to see which funds crop up the most frequently.
Although the increase in property exposure was small at 0.27 per cent, there was a change in the most popular funds during the quarter. In Q3, M&G Property Portfolio was the most popular fund with multi-managers and DFMs but it has now been joined in first place by Henderson UK Property.
Both funds have proven to be very popular with investors over recent years, as interest in property returned after the financial crisis. Indeed, from being routinely ignored immediately after 2008, the IA Property peer group went on to become the Investment Association’s best selling sector in a number of months.
M&G Property Portfolio, which is managed by Fiona Rowley with Justin Upton as deputy, is the larger of the two with assets of £4.7bn.
The fund has little exposure to central London, as the managers see this area as being relatively expensive, with just 4.5 per cent of assets being in the capital. The largest-regional allocation is to the south-east at 40.9 per cent, followed by the Midlands (19.8 per cent) ad northern England (11.8 per cent).
Marcus Langlands Pearse and Ainslie McLennan's £4.2bn Henderson UK Property fund has a preference for prime properties as the managers want assets that are good quality, well located and properly managed. The portfolio therefore tends to have a high weighting to the south-east.
The managers also focuses on letting to what they perceive as low-risk tenants to ensure security of income. Its biggest tenants currently are Royal Bank of Scotland, Sainsbury’s, B&Q, Tesco and the London Fire and Emergency Planning Authority.
While the two property funds hold joint first, another seven share the second spot and they are shown below.
Source: Harrington Cooper
Over the quarter, professional investors lowered their exposure to UK equities by 41 basis points to 16.24 per cent, while allocations to Europe and Japan were lifted by 50 basis point and 47 basis points, respectively, to 8.52 per cent and 5.53 per cent.
In the most commonly held funds, one new entrant was Jupiter UK Growth despite the UK allocation being pared back. Steve Davies has run this £1.6bn fund since launch in January 2013, over which time it has made a first-quartile 39.75 per cent total return compared with the FTSE All Share’s 22.42 per cent gain.
Davies seeks to invest in two broad types of company: those with impressive future growth prospects and those that have been under pressure but have the potential to recover. Top holdings include Dixons Carphone, Lloyds Banking Group, Legal & General, Barclays and Experian.
The quarter also saw the entrance of two high-yield bond funds into the ranking – Kames High Yield Bond and Royal London Short Duration Global High Yield Bond.
Kames High Yield Bond, which is headed by Philip Milburn and Claire McGuckin (although Milburn is currently on leave for health reasons), is a high-conviction strategy that aims to capitalise on taking credit risk. This means the portfolio can be more volatile that its average peer but tends to outperform in times of strong corporate bond performance.
Azhar Hussain and Stephen Tapley’s Royal London Short Duration Global High Yield Bond fund is based around the view that the majority of defaults occur in the first three years of the life of a bond, not near the time of maturity. The team argues that buying shorter dated bonds nearer to maturity is much lower risk and therefore focuses on bonds that are relatively close the end of their life in a bid to capitalise on low default rates.
Another new entrant on the list is Majedie Tortoise, a long/short global equity fund headed up by Matthew Smith and Tom Morris. It seems to achieve a positive absolute return in all market conditions
Since Smith joined the portfolio in February 2013, the fund has made a 12.56 per cent total return, compared with a 33.62 per cent rise in the MSCI World.
Rolling 3yr returns of fund since launch
Source: FE Analytics
However, the fund targets absolute returns over rolling three-year periods and, as the graph above shows, it has been successful in this aim since launch.
