Fund managers `not investing in best performers'

Evidence emerged yesterday that fund managers are not investing enough in the market's fastest growing asset classes. Figures compiled by Baring, Houston & Saunders, the property advisory arm of Dutch bank ING, showed that institutions have cut their holdings in direct property by half over the past 10 years despite it being one of the best performing assets.

The figures followed a day after an analysis from WM, the Edinburgh- based fund management performance specialist, showing pension funds failing to match the return achieved by the FTSE All Share Index in the first quarter of this year. According to WM, pension funds only managed a 4.6 per cent return on their UK equity holdings in the three months to March, compared with a 5.3 per cent return from the market as a whole.

The two surveys are bound to fuel concerns that expensive fund managers are failing to earn their keep and they could accelerate the trend towards index-tracking funds. These attempt no more than matching an index but at a considerably lower cost than actively managed funds.

Derek Casey, head of Baring Houston's research department, said: "We are trying to put direct property performance into context. These figures add to the current debate about the spread of institutional portfolios, and suggest that property returns are vastly underrated, and that institutions are surprisingly underweight."

According to the research, the balance of institutional portfolios represented by direct property holdings has fallen from 11.3 per cent in 1990 to just 5.2 per cent last year. That has been despite a 9.6 per cent compound growth in the total return (capital gain plus income) from property in the last 10 years.

That performance put property in fourth place behind UK and US equities and UK bonds but ahead of UK cash, European equities, index linked gilts and other overseas equities. Despite their relatively poor showing, overseas equities now account for a larger proportion of institutional portfolios than six years ago and the balance given over to UK bonds has risen sharply from 11.2 per cent to 14.7 per cent.

According to Baring Houston, that leaves institutions particularly badly placed this year, when good growth in GDP is expected to result in a good year for property. In 1987, when GDP was strong, property outperformed all its main competitor classes by a wide margin. Property returns were 26 per cent compared to 8 per cent for UK equities, 15 per cent for gilts and a fall of 9 per cent for overseas shares.

The chances of that sort of performance being repeated this year were highlighted by figures this week from Land Securities, Britain's largest landlord, which showed a 13 per cent rise in net assets as rental growth in good quality buildings took off.

If property enjoys another bumper year, funds will fail to enjoy the benefit thanks to their reduced weightings. They are also much more heavily exposed to equity markets which, after strong runs on both sides of the Atlantic, look vulnerable to a correction, especially if the Chancellor makes widely expected changes to the tax credits that gross funds enjoy on their dividend income.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Software Development Manager

£40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...

Ashdown Group: Product Manager - (Product Marketing, Financial Services)

£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Day In a Page

Isis hostage crisis: The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power

Isis hostage crisis

The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power, says Robert Fisk
Missing salvage expert who found $50m of sunken treasure before disappearing, tracked down at last

The runaway buccaneers and the ship full of gold

Salvage expert Tommy Thompson found sunken treasure worth millions. Then he vanished... until now
Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Maverick artist Grayson Perry backs our campaign
Assisted Dying Bill: I want to be able to decide about my own death - I want to have control of my life

Assisted Dying Bill: 'I want control of my life'

This week the Assisted Dying Bill is debated in the Lords. Virginia Ironside, who has already made plans for her own self-deliverance, argues that it's time we allowed people a humane, compassionate death
Move over, kale - cabbage is the new rising star

Cabbage is king again

Sophie Morris banishes thoughts of soggy school dinners and turns over a new leaf
11 best winter skin treats

Give your moisturiser a helping hand: 11 best winter skin treats

Get an extra boost of nourishment from one of these hard-working products
Paul Scholes column: The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him

Paul Scholes column

The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him
Frank Warren column: No cigar, but pots of money: here come the Cubans

Frank Warren's Ringside

No cigar, but pots of money: here come the Cubans
Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

Isis stands strong as its numerous enemies fail to find a common plan to defeat it

The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

Virtual reality: Seeing is believing

Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
Homeless Veterans appeal: MP says Coalition ‘not doing enough’

Homeless Veterans appeal

MP says Coalition ‘not doing enough’ to help
Larry David, Steve Coogan and other comedians share stories of depression in new documentary

Comedians share stories of depression

The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
Has The Archers lost the plot with it's spicy storylines?

Has The Archers lost the plot?

A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
English Heritage adds 14 post-war office buildings to its protected lists

14 office buildings added to protected lists

Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Scientists unearthed the cranial fragments from Manot Cave in West Galilee