Brexit takes its toll on property funds, trading suspended

A number of fund management companies have suspended trading on their physical property funds. Standard Life Investments suspended trading on its UK Real Estate fund on Monday 4th July 2016. Trading on Aviva Investments Property Trust and M&G Property Portfolio was suspended the following day and trading on Threadneedle UK Property and the Elite Rated Henderson UK Property fund was suspended today.

Suspensions in context

During the run up to the EU referendum, and post the result, the numbers of investors redeeming their holdings in UK physical property funds increased quite significantly, as uncertainty over the outlook for the UK property market became more of a concern.

When the number of investors selling their holdings in a physical property fund far outnumbers those buying, it can be a problem because the managers cannot sell their assets quickly enough to raise cash to meet investor redemptions.

What does this mean?

The funds’ cash reserves have fallen as redemptions have been met. Therefore, to protect existing investors in the funds and to prevent the fund managers from being forced to sell their property at low prices, these companies have decided to suspend trading on their property funds. This means investors cannot buy or sell these fund at the moment.

When will the funds re-open?

This is yet to be determined, but the funds will stay closed for a minimum of 28 days. The funds will now be valued weekly.

What about other UK physical property funds?

There is a possibility that more UK physical property funds may follow suit and suspend trading in the near future.

Does it matter if I’m a long-term investor?

There should not be an issue if you are a long-term investor. Property funds will continue to pay out income if you are in the income share class, regardless of whether they are closed or not. Property remains a good diversifier in a wider portfolio and the funds will re-open at some point.

You should also be aware that most property funds have already had a ‘fair value adjustment’ of around 5% since the Brexit vote. Most funds have also moved from offer to bid pricing, resulting in a further 5% downward move in price. If you sell now, you will crystallise this loss. However, it is of course possible that values could fall further.

This article is provided for information only. The views of the author and any people quoted are their own and do not constitute financial advice. The content is not intended to be a personal recommendation to buy or sell any fund or trust, or to adopt a particular investment strategy. However, the knowledge that professional analysts have analysed a fund or trust in depth before assigning them a rating can be a valuable additional filter for anyone looking to make their own decisions. Past performance is not a reliable guide to future returns. Market and exchange-rate movements may cause the value of investments to go down as well as up. Yields will fluctuate and so income from investments is variable and not guaranteed. You may not get back the amount originally invested. Tax treatment depends of your individual circumstances and may be subject to change in the future. If you are unsure about the suitability of any investment you should seek professional advice. Whilst FundCalibre provides product information, guidance and fund research we cannot know which of these products or funds, if any, are suitable for your particular circumstances and must leave that judgement to you. Before you make any investment decision, make sure you’re comfortable and fully understand the risks. Further information can be found on Elite Rated funds by simply clicking on the name highlighted in the article.