IPD: European funds deliver marked recovery over H1 (EU)

Institutional European pooled property funds have completed a marked recovery over the 12 months to June, delivering an 8.3% local currency total return, compared to -18.6% over the previous year to June 2009, according to the IPD European Pooled Property Fund Indices (ePPFI).

The bulk of the recovery was achieved in the first six months of 2010, which contributed a 4.1% six-month total return, which reflects the improvement in the underlying performance of key direct European property markets, the positive influence of leverage in rising markets as well as shrewd recovery investment strategies.

The IPD ePPFI is based on a universe of 269 funds focused a broad selection of markets and strategies accessed by a global market of institutional investors representing a total NAV of €86.5 billion and a total GAV of €130 billion.

"These figures illustrate a substantial recovery for the European pooled property fund market. Although lower the performance achieved during the bull market years of 2005 and 2006, the headline 8.3% annual return marks a return to more consistent performance inline with the first half of the last decade," said Cameron McVean, Head of Fund Services at IPD.

The returns for Specialist and Balanced property funds over the past three years to June 2010 reveal the significant impact that leverage can have on the performance of investments. Specialist funds, which adopt sector specific strategies and typically apply higher levels of leverage, delivered -9.2%, outperformed balanced funds – which by nature are well diversified and utilize debt to a lesser extent – and which returned -2.4%.

McVean added: "The headline results mask a number of factors: improvements in some key underlying direct European property markets; ongoing oscillations in the currency markets; the consequences of geographic and sector investment strategies; as well as the impact of leverage. All of which contributed to a 62 percentage point local currency-denominated total return spread across the 1st to 99th percentiles – at 38.3% and -23.9%, respectively."

Ongoing fluctuations in the fortunes of global currencies have had a marked impact on the performance delivered by European property funds to their global client base. To illustrate this average returns for Institutional property funds over the six months to June were 0.8% in sterling, which improved significantly to 9.4% in euros.

Across Europe local market returns varied significantly, the best six months and 12 months performance being offered by the UK, which measured by the IPD UK Pooled Property Fund Indices – sponsored by AREF and PropertyMatch – recorded 9.5% and 22.9% respectively. The Iberian market also recorded good performance for the same periods (5.1%) for the first half of 2010 and an annual return of 6.4%.

Pan European Open-Ended Funds – funds operating cross-boarder strategies through Europe – for which IPD has developed a quarterly benchmark, also performed relatively well during the first half of 2010 delivering a total return of 4.0%. Comprised of a cohort of 17 funds with consistent valuations this series tracks the performance of funds aimed at investors wishing to access European property markets.

McVean said the performance for European Property Funds was encouraging for the market. He added: "It is exciting to be able to finally offer investors a tangible benchmark for pan-European strategies; unlike the broader Institutional indices, which cover a very broad universe, the IPD Pan-European Open-Ended Funds benchmark offers the market a significant improvement in terms of its ability to track the performance of individual funds offering a pan-European strategy."

Source: IPD

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