The financial-services industry has always had an uncanny ability to lure ordinary investors into a story just as the smart money is getting out.

Perhaps the most infamous example is from America. In 2002, Merrill Lynch’s dotcom analyst Henry Blodget was caught out privately describing as “dogs” stocks that he had publicly tipped as a good bet for investors.

More recently, in 2004 and 2005, the big life funds were selling out of shops and offices just as they were encouraging savers to get in. And where did those shops and offices end up? In their funds for ordinary investors.

To take just one example, when Scottish Widows Investment Partnership (Swip), the fund manager owned by the high-street bank Lloyds TSB, launched its Property Trust for private investors in November 2004, 70 properties worth £630m were transferred into the new fund from Abbey Life, a closed life fund that was also owned by Lloyds TSB.

Admittedly the institutional money got out too early: the Swip trust went on to make 17.5% in 2005 and 15.5% in 2006. The following year, however, it lost 11.2% and is down 5.2% since January.

With further pain predicted in the sector, it won’t be long before ordinary investors are back to square one.

We got another example of the trend last week. The investment bank Morgan Stanley launched a UK Commercial Property Growth plan which will be sold through advisers, just as its equity analysts down the corridor at its Canary Wharf offices were downgrading the sector.

They warned that shares in real-estate companies such as British Land and Land Securities, which own huge swathes of Britain’s office blocks and retail centres, could fall a further 30% or so before the downturn is over at the end of next year.

With the sector already down about 30% from its peak last year, that’s a serious amount of blood-letting. And not the best time to launch a commercial-property fund, you might think.

However, Morgan Stanley is not alone in calling the bottom. Last week, Aberdeen Asset Management, a name synonymous with the split-capital-trust debacle, became Britain’s second-largest property manager after paying £97.4m for Goodman Property Investors, a business it sold less than four years ago.

Dubai World’s real-estate arm, Limitless, is said to be close to a bid for Minerva, which owns the office block under construction at St Botolph’s in the City. Everyone from private-equity outfit Blackstone to activist-investor Laxey Partners is launching funds to pick off dirt-cheap property assets.

Millions of investors with about £8 billion tied up in commercial-property funds will be hoping they are right. But I think there’s further pain to come, and even if I’m wrong I wouldn’t use a product like Morgan Stanley’s to play a sharp rebound. Its new fund is a structured product that provides a positive return as long as the market does not fall by more than 35% over the term of five years and nine months.

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