Investors swap vulnerable bonds for property

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A record amount of money poured out of bond funds last month as a spike in global bond yields spooked investors. According to asset managers, property has mopped up a decent amount of the proceeds.

Aggressive selling of bond funds has left fund managers who have already amped up their equity exposure searching for somewhere to park their cash and for many, property is being seen as a compromise between bonds and equities.

"Partly as a result of our views on the potential dangers in the bond market, we have been shifting some of our exposure into property," said Bill McQuaker, head of multi-manager at Henderson Global Investors.

(Read More: 'Unprecedented' $80 Billion Pulled From Bond Funds)

"In some respects, property can be perceived as a 'stepping stone' asset for investors who are looking to rotate out of bonds, but who are not yet comfortable investing in equities. It offers a similar yield to high-yield bonds, but with arguably fewer valuation concerns," he said.

McQuaker said that unlike the considerable sum of money that has been invested in bonds over the past few years, property has had very little direct investment.

"Although we do not expect much in the way of capital gains in the short run, running yields (the annual income on an investment divided by its current market value) from commercial property are relatively attractive. We anticipate a yield in the area of 4.5-5 percent over the course of a year," he said.

(Read More: Bond Sell-Off Heightens Risk of '1994 Moment')

Rob Worthington, portfolio manager of the Multi Asset Income fund at JPMorgan asset has been trimming exposure to fixed income over the last six months across the firm's global multi asset portfolios.

In the European portfolio, Worthington said the allocation to high yield bonds peaked at 55 percent and is now currently sitting at 25 percent, some of which has gone into property.

(Read More: Expected Rotation Out of Bonds Rattles Hedge Funds)

"We specifically look at Real Estate Investment Trusts (REITs) because they are more liquid than investing directly in commercial property. It is diversified and we have a 6 percent allocation to global REITs within the global portfolio," said Worthington.

"They tend to be concentrated in U.S., Japan and Australia where we can find a decent dividend yield," he said.

"In 2007, our head of global REITs at JPMorgan asset management advised us against having any allocation to REITs at all, so we liquidated a 9 percent allocation, the REITs market then dropped and we missed out on that downside. Apart from that, we structurally always have an allocation to REITs," he added.

Worthington said even after a 2.5 percent loss in June, which REITs suffered along with other asset classes, the FTSE-developed REITs index is still up 5.8 percent year-to-date.

(Read More: Bond Investors Were 'in Denial')

Property ETFs have also seen strong inflows according to BlackRock. The iShares Developed Markets Property Yield UCITS ETF saw $277 million of inflows in the first quarter of 2013 compared to $173 million in the first quarter of 2012. Within U.K. property, inflows into the iShares UK Property UCITS ETF are up $25 million, from $5 million in the first quarter of last year to $30 million for the first quarter of 2013.

Pension funds are also adding to their property holdings, with U.K. telecoms company BT and the Canada Pension Plan Investment board announcing on Friday they have invested in both central London office real estate and New York rental property.

Even asset managers who are not as bearish on the bond market are still eyeing the opportunities within the property market.

(Read More: Great rotation still a 'long way' off)

"I do not see the blood bath in the bond markets that some are foreseeing, but I am still keen on the property space, however one of the challenges is finding a liquid solution," said Nigel Cuming, chief investment officer at wealth manager Canaccord Genuity.

"We are eyeing up some global property funds to add to our portfolio where we won't be locked in for 6 to 12 months, like you could be with direct investment. We are looking for an entry point, hopefully as early as next week," said Cuming.

"It is very topical for investors at the moment and as we go for growth globally it could prove to be a good hedge against inflation," he added.

By CNBC's Jenny Cosgrave: Follow her on Twitter @jenny_cosgrave