Real Estate Research
The case for UK Property Multi-Manager
Schroders Property multi-manager: the investment case
The case for UK Property Multi-Manager (UKPMM)
Investing with a property multi-manager service should provide three key benefits: consistent total returns through diversification and active portfolio management; access to opportunities which would otherwise not be available; and the outsourcing of administration and governance of the underlying investments. This paper examines all of these benefits in turn.
Providing consistent returns through active portfolio management
The total returns of Schroders UK multi-manager accounts have proved to be more consistent than those of the balanced funds included in the AREF/IPD UK Quarterly Property Fund Index (“the Index”). To illustrate this, the chart below compares the range of returns delivered by balanced funds in the Index with the best and worst performing multi-manager mandates across Schroders 30+ accounts. Taking the past year as an example, the range of total returns of the best and worst performing balanced funds in the Index has been 11%. In comparison multi-manager investors have enjoyed a more consistent range of performance (4.1%). This is a theme that has held over all time periods.
This is a result we should expect. One of the key characteristics of a multi-manager portfolio is diversification, not just in the breadth of underlying assets but also of the managers and investment houses which drive the performance of those assets. A good multi-manager should be able to avoid the worst performing funds, and at the very least only have part of his portfolio exposed. The extremes of performance should therefore be avoided.
Figure 1: UKPMM, track record – range of portfolio total returns
Greater consistency of returns through diversification is one thing but do multi-managers add value over and above the fees they charge? In the chart below we have shown the entire total return history of Schroders UK Property Multi-Manager investments net of all management fees since the inception of our multi-manager business (blue line). This is compared with the performance of the Index and the best and worst performing funds within the Index over the same time period. It shows that in addition to avoiding the extremes of performance provided by the best and worst performing balanced funds the UK multi-manager investments have also outperformed net of fees.
Figure 2: UKPMM, Index of total returns net of all fees
So how has this been achieved? A multi-manager can add value in two ways: selecting outperforming property funds and positioning the portfolio towards the best performing property sectors (and away from the worst).
Selecting the best property funds
The table below shows that most balanced funds have peaks and troughs through a cycle. Since June 1999 eleven of the largest fifteen balanced funds have claimed the title of best performing property fund over a twelve month period. However, nine of the same fifteen funds have also had the less favourable accolade of being the worst. Of course this analysis also has an element of survivor bias as some of the balanced funds which have performed particularly poorly are no longer in the Index. One balanced fund is no substitute for another – each has its own unique assets and investment characteristics. A successful multi-manager should understand this and be able to assess which fund is likely to outperform at a given point in the property cycle, selecting the allocations within his portfolio accordingly.
Important information: The views and opinions contained in the article are those of Anthony Doherty, Fund Manager, Property Multi-Manager at Schroders,and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. For professional investors and advisors only. This document is not suitable for retail clients. This document is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroder Property Investment Management Limited (Schroders) does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Schroders has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Schroders has expressed its own views and opinions in this document and these may change. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions. Any forecasts in this document should not be relied upon, are not guaranteed and are provided only as at the date of issue. Our forecasts are based on our own assumptions which may change. We accept no responsibility for any errors of fact or opinion and assume no obligation to provide you with any changes to our assumptions or forecasts. Forecasts and assumptions may be affected by external economic or other factors. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested. The Schroders Property Multi-Manager Service will involve investment in unregulated collective investment schemes, as defined in the Financial Services and Markets Act 2000 (“the Act”), and consequently, all or most of the protections provided by the UK regulatory system do not apply and compensation under the UK Financial Services Compensation Scheme will not be available. Property-based pooled vehicles such as property unit trusts, invest in real property, the value of which is generally a matter of a valuer’s opinion. It may be difficult to deal in the units or to sell them at a reasonable price, thus creating a liquidity risk. There may be no recognised market for units in the Funds and, as a result, reliable information about the value of units in the Funds or the extent of the risks to which they are exposed may not be readily available. A potential conflict with the Manager’s duty to the client may arise where the Manager invests in units in a Fund(s) managed by itself or an Associate. However the Manager will ensure that such transactions are effected on terms which are not materially less favourable than if the potential conflict had not existed. Use of IPD data and indices: © and database right Investment Property Databank Limited and its Licensors 2014. All rights reserved. IPD has no liability to any person for any losses, damages, costs or expenses suffered as a result of any use of or reliance on any of the information which may be attributed to it. Issued by Schroder Property Investment Management Limited, 31 Gresham Street, London EC2V 7QA. Registration No. 1188240 England. Authorised and regulated by the Financial Conduct Authority. For your security, communications may be recorded or monitored. INS03455 w46145