Within the balanced fund sub-category, managed property funds – which always re-invest income – delivered the best returns over the period, at 2.5%. Low geared balanced funds and balanced property unit trusts returned 2.0% and 1.8%, respectively.
Based on the entire fund universe, 82%, or 50 funds, have returned to positive territory during the third quarter, while the returns spread of the mainstream sector funds was 21.6 percentage points. Improving underlying direct property markets, with 1.2% capital growth over Q3 according to the IPD UK Monthly Index, and a reduction in the use of debt by unlisted funds have been the two critical drivers of the return to positive performance. A series of unlisted funds have also undergone fund restructuring.
"The effect of fund-level gearing, the principal driver of pooled funds’ underperformance over the two-year decline, is now more mixed," said Cameron McVean, Head of Fund Services at IPD. "While six out of the 11 funds which continued to deliver negative returns over the third quarter with a gross loan-to-value ratio above 60%, 10 out of the 24 funds which outperformed the direct property market retained gross gearing above 45%. This shows very clearly the contrasting impact gearing can have."
Total returns for all pooled funds in the IPD UK PPFI now stand at -14.3% for the year-to-date. This compares to -6.6% in underlying direct markets.
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