Morningstar IM exits property amid liquidity risks

House-Property-Ladder-Rising-Prices-640.jpgMorningstar Investment Management has exited UK property in its actively managed portfolios due to increasing liquidity risks.

Simon Molica, co-manager of the active Morningstar managed portfolios says while property investments showed a strong recovery over the last couple of years there are now liquidity risks in the asset class.

He says: “We had a big crash in 2007 and 2008 in property but since then we had a strong recovery.”

However, despite been “extremely” overweight in property over the past two years, he has gradually been reducing the allocation in the actively managed portfolio due to lower expected lower returns.

Molica says: “We’ve exited property in each of the UK Morningstar active managed portfolios, completing the gradual reduction we’ve carried out over the past nine months.

“After a strong recovery in commercial property valuations over the past three years, we now expect lower total returns from the asset class in the future.”

The fund manager is now looking elsewhere and he cites equities, cash and absolute return where is “putting more capital on”.

Molica says: “While property retains merit for yield-focused income-oriented investors, from a total return perspective our research concludes that greater returns can be achieved in alternative assets in the portfolios.

“We find this especially so when factoring in the liquidity risk posed by daily-dealing property funds.”

Last week, Standard Life Investments, Henderson Global Investors and M&G Investments changed pricing structures at their property funds due to outflows.