Leader: Ready to follow the yellow brick road?

FS Adam Lewis 160 byline

Having featured a cover story on a potential resurgence in commercial property last month (15 May), it felt like the right asset class to debate in this month’s Fund Strategy Investment Committee; and what a debate was had (see page six).

As an asset class, commercial property is the one that always seems to split opinion down the middle. Even at the height of its popularity in 2006 and 2007, when it was the top-selling sector for 17 straight months in net retail terms, it had its detractors, the most vocal of which was Hargreaves Lansdown’s head of research Mark Dampier.

Even when the New Star Property fund was passing through the £1bn mark in assets, Dampier stood firm in his conviction that the asset class was not the diversifier it was being made out to be, leading to a long-running spat with New Star founder John Duffield.

Dampier’s main concern was that, despite an impressive advertising campaign from New Star, property at the time looked overpriced. Indeed, despite the claims of it being a diversifier, he argued this was on the basis of past history when the asset class had been genuinely cheap.

As for claims of it being less volatile than other sectors, Dampier said this was because, at best, it was only priced once a month. He also said it was dependent on the health of the UK economy and the ability of banks to lend, a claim well founded when volumes dived by about 45 per cent between 2007 and 2009 in the aftermath of the onset of the financial crisis.

Since those falls, the asset class has lost its lustre somewhat, but a number of the panellists in this month’s investment committee are convinced the asset class is on its way back to becoming a genuine diversifier from bonds and equities, and have been reinvesting. Others, however, are less certain.

So what of Dampier? He still questions whether open-ended funds are a good vehicle for an asset class that is relatively illiquid and where he claims fund managers have little control over the fund flows. Meanwhile, for those who make an income case for using property, he contends while the yields that are gross look good on an index basis, when translated through a fund they generally look rather poor.