There’s no denying that the value of the PMF has taken a tumble since its giddy heights last year and we all know the reason – the sub-prime mortgage crisis in the USA which unfortunately spilled over the Atlantic and infected both commercial and residential property values in the UK.

Some property funds have even had to invoke their 6-month deferment of encashment clauses to avoid incurring huge losses as a result of having to sell properties at deflated values in order to raise cash to meet encashments.

The fall in commercial and residential property values, whilst not a particular problem for the Ground Rent and Student Accommodation Funds, has badly affected the three funds which are more commercially oriented and it is this which has caused the downward pressure on the PMF performance over 12 months.
However let’s not ignore the fact that the PMF has, in fact, done exactly what it was intended to do – provide a more stable home for the savings of retired expatriates that would normally be expected from investing in the world’s stock and bond markets.

As the graph below clearly demonstrates, the PMF HAS provided a more stable environment for their capital even though the bottom-line figure – the actual percentage return – has been very disappointing. However this is a temporary situation and as the UK property market recovers – albeit slowly – the last year will be seen as what it really is – a “blip” in the performance of an otherwise reliable asset class.

Of course for those whose ILI bond is denominated in Euros the situation seems much worse. However we must ensure that those clients affected are clearly aware that this is a product of adverse currency fluctuations and not something that comes from the PMF. As the exchange rate between the Pound and the Euro starts to go the other way (currencies are continually weakening and strengthening against one another) those investors in Euro denominated bonds will see an accelerated rate of return compared to the rising Sterling returns from a recovering UK property market. This should not be far away.