June 23, 2011 / 8:59 AM / 6 years ago

Investors favor global-minded U.S. property funds

LONDON (Reuters) - Globally focused U.S. property funds are gaining favor with yield-hungry investors who are pouring capital into the vehicles to profit from their exposure to the fast-growing economies of Asia, research showed.

These funds drew 32 percent of the $10.1 billion of inflows into U.S. property funds for the year to end-May, although they hold a proportionately smaller share of the market, a Lipper survey of 385 U.S. property funds showed.

“People have had a tendency to prefer the global market over the last two years,” said Tom Roseen, research services head at Lipper, a Thomson Reuters company that tracks mutual fund data.

Lipper splits globally focused U.S. funds into two groups -- global funds holding at least 25 percent of their portfolio outside the United States, and international funds that hold at least 75 percent of their portfolio in overseas investments.

Collectively, these funds hold 27 percent of the $9.6 billion managed by the entire U.S. property funds industry.

“By being in overseas funds, in European or Asia-focused funds, investors get a double benefit -- a higher yield, and also the exchange rate benefit of being in a foreign currency as the dollar goes down,” he said.

The U.S. dollar .DXY tumbled close to the lows of 2008 in May, fueled by the U.S. Federal Reserve’s loose monetary policy and decision to keep interest rates low. It has lost about 7 percent against the euro this year.

On June 17, the International Monetary Fund cut its forecast for U.S. economic growth to 2.5 percent this year, down from its previous forecast of 2.8 percent growth. In contrast, it expects China to grow by 9.6 percent this year.

REBOUND PERFORMANCE

The global commercial property market is part-way through a multi-speed rebound, led by surging rents and demand in Asia, while the United States and Europe grapple with a paucity of capital and depressed property values.

Globally focused funds have performed better than their domestically focused counterparts, the data showed, with the international and global funds posting one-year returns of 31 and 26 percent, respectively, against 24 percent for U.S. funds.

Among these funds’ top holdings were Asia’s biggest property developer, Sun Hung Kai Properties Ltd (0016.HK), U.S. mall owner Simon Property Group (SPG.N) and European property giant Unibail-Rodamco UNBP.PA.

The data also showed year-to-date investment inflows into the 385 U.S. property funds were up almost three-fold from the same period in 2010, marking a shift away from the period of capital drought during the 2007-8 financial crisis.

Yield-chasing U.S. investors were pouring more money into real estate on the bet that recovery in the asset class has lagged that in other stocks, Ronseen said.

“U.S. investors have seen grand run-ups in equities in 2009 and 2010. However, real estate funds did not participate to the same extent, so U.S. investors decided to take advantage of this lagging asset class,” he said.

“With money market funds and bond funds paying generally lower yields, investors have begun looking for higher yields in riskier assets.”

(See www.reutersrealestate.com for the global service for real estate professionals from Reuters)

Editing by Andrew Macdonald

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