MSCI: Global Property Fund Returns Moderate

Global property fund returns moderated after reaching new highs in recent years, reported MSCI, New York.

MSCI (formerly Morgan Stanley Capital International) reported a global property fund return of 7.8 percent at net asset value level for the 12-month period ending in December, down from 10.6 percent in September and 13.5 percent for calendar-year 2015. This represented a 570 basis point decline from the IPD Global Quarterly Property Fund Index’s four-year high in December 2015.

“We saw a significant moderation in the performance of property funds in 2016 as economic and geopolitical risks began to impact markets, particularly in the second half of the year,” said MSCI Executive Director Ken Greguski.

But Greguski noted that the index’s three and five-year returns remain in double digits, “reflecting the solid recent performance of real estate investments.”

The 7.8 percent full-year 2016 return outperformed global bonds but fell behind global equities, MSCI said.

Forbes reported that a “small but growing” number of hedge funds are positioning themselves to profit from a possible commercial real estate downturn. “Bearish bets against commercial loans jumped 50 percent year-over-year in February,” the magazine said. “Alder Hill (a hedge fund started by associates of billionaire David Tepper) is bearish on commercial loans and expects 2017 to be a ‘tipping point.’ Morningstar Credit Ratings estimates roughly 40 percent of the loans due this year won’t be paid.”

At the regional level, the Asia-Pacific region recorded a 10.7 percent total return and Europe returned 8.9 percent compared to North America’s 7.8 percent in 2016. Funds in all regions saw declining returns during 2016; the difference ranged from 70 basis points for Asia to 490 basis points for North America.

“By sector, industrial properties continued to outperform other property types and were the only asset type in 2016 to outperform the [IPD Global Quarterly Property Fund] Index over one-, three- and five-year annualized periods,” MSCI said.

The IPD Global Quarterly Property Fund Index tracks core real estate investment performance. It has a $313 billion total net asset value and a $394 billion total asset level capital value and is based on a sample of 98 core and open-ended funds across the globe.