Property funds expected to be popular as investors seek regular income streams

Written by Ray Clancy

Thursday, 11 February 2010 09:12

Property funds are coming back into vogue as investors have returned to the asset class in ever greater numbers as risk appetite and asset prices recover, it is claimed.

New funds are being launched and others are re-opening with many managers saying this is due to demand as well brighter prospects. With interest rates low investors want other sources of regular income.

Among those coming back onto the market is Henderson New Star’s International Property fund which will reopen next month with up to 20% in cash to act as a liquidity buffer in case the sector is once again hit by a wave of redemptions.

Mark Carpenter, manager of the fund, which was hurt by a wave of withdrawals leading to a suspension of redemptions in November 2008, said he would now maintain 15 to 20% of the fund in cash at all times, and would also consider using some of the cash position to buy property shares.

He said there would be no change to the investment remit for the fund, with real assets still the main focus, but that property stocks could form part of the liquidity buffer. But Carpenter stressed that cash would normally form at least 10% of the fund even when part of the liquidity was invested into property stocks.

Alongside the cash buffer, the management team is to restrict dealing on large redemptions.
Any investor seeking to withdraw £7.5 million or more must give one month’s written notice or accept a charge of 10% of the value of the redemption. Carpenter believes this will allow him a much tighter rein on liquidity.

Santander Asset Management is the latest asset manager to launch funds to satisfy investor demand for meaningful income. The Santander Enhanced Income Portfolio, managed by Stephen Payne, has a 6% yield target and will invest in a combination of shares, alongside the ability to make covered calls, in a bid to harness extra yield. The fund is also permitted to invest in UK fixed interest securities and cash deposits.

Santander says the fund has the ability to generate additional income by selling the right to some of the potential capital growth on some holdings for a limited time period.

Meanwhile, the Santander Sterling Corporate Bond fund, managed by Patrick Smith, will be a more conventional proposition, investing in a combination of investment grade corporate bonds and government securities.

Both funds sit within the firm’s Portfolio Investments fund range, which was launched in December 2008 and now contains five income and five growth funds.

‘In a sustained period of low interest rates, there is clearly a real appetite amongst investors for a source of regular income,’ said Santander Asset Management chief investment officer John Bearman.