Property Funds Suffer Third Year of Outflows, but the Future Looks More Promising


Property funds were hit by a third painful year of outflows in 2021, according to the latest Fund Flow Index from Calastone. Investors redeemed a net £2.1bn, taking the cumulative outflow since October 2018 to £6.3bn.

Over the same period, investors have added enthusiastically to other asset classes: £25.2bn to equity funds, £14.8bn to bonds, and £24.1bn to mixed assets.

The turnaround may be coming, however. Over 80% of the outflows in 2021 took place in the first six months of the year. By December 2021, outflows had dwindled to just £25.9m, having declined for eight months in a row.

Edward Glyn, head of global markets at Calastone said: “Even with our offices and streets once again half empty as the Omicron variant spreads across the UK, the long winter for the property sector may finally be coming to an end. Companies have now worked out what their property needs are in the post-Covid world, and the pandemic is likely to fade into the background in the months ahead. With only the diehards still left holding on to property funds, there is a lot of room for deserters to return and new buyers to test the sector for the first time.

We should remember that real estate is an extraordinarily varied sector, both geographically with city-centre, suburban and provincial locations, and from an industry perspective, covering office, logistics, industrial and commercial. Some segments, like hospitality, may take years to recover from the pandemic, but others, like logistics in particular are coming out of it stronger than ever.

Higher interest rates are negative for property values, but the income premium is unlikely to be eroded, even if there’s been a rental squeeze for landlords in the last two years. What’s more, once demand returns, there is an implicit inflation hedge in property too.”


Calastone analysed over a million buy and sell orders every month from January 2015, tracking monies from IFAs, platforms and institutions as they flow into and out of investment funds. Data is collected until the close of business on the last day of each month. A single order is usually the aggregated value of a number of trades from underlying investors passed for example from a platform via Calastone to the fund manager. In reality, therefore, the index is analysing the impact of many millions of investor decisions each month.

More than two thirds of UK fund flows by value pass across the Calastone network each month. All these trades are included in the FFI. To avoid double-counting, however, the team has excluded deals that represent transactions where funds of funds are buying those funds that comprise the portfolio. Totals are scaled up for Calastone’s market share.

A reading of 50 indicates that new money investors put into funds equals the value of redemptions (or sales) from funds. A reading of 100 would mean all activity was buying; a reading of 0 would mean all activity was selling. In other words, £1m of net inflows will score more highly if there is no selling activity, than it would if £1m was merely a small difference between a large amount of buying and a similarly large amount of selling.

Calastone’s main FFI All Assets considers transactions only by UK-based investors, placing orders for funds domiciled in the UK. The majority of this capital is from retail investors. Calastone also measures the flow of funds from UK-based investors to offshore-domiciled funds. Most of these are domiciled in Ireland and Luxembourg. This is overwhelmingly capital from institutions; the larger size of retail transactions in offshore funds suggests the underlying investors are higher net worth individuals.

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