Interactive Investor

Fund closure highlights a broader issue about value for money statements

20th May 2021 13:36

Jemma Jackson from interactive investor

interactive investor comments on the news that Aviva Investors is closing its UK Property fund.

Aviva Investors is closing down its UK Property fund, along with two feeder funds, over a year since it was suspended. It will take up to two years for investors to have their money returned to them.

According to the asset manager, the fund is being shut because it is becoming “increasingly challenging to generate positive returns” while maintaining the necessary liquidity required for the open-ended fund structure.

But the firm also said that a review of the funds value assessment determined that it would be in investors’ interests to wind up the fund, alongside its two feeder funds.

Kyle Caldwell, Collective Specialist, interactive investor, says: “The shortcomings of open-ended funds when it comes to investing in illiquid assets is no secret – and this closure is unlikely to be the last. While investment trusts are a better, if imperfect solution to the liquidity issue, the regulator doggedly still looks for workarounds that will use the open-ended structure. The jury is likely to remain out.

“But there is a wider issue here – and that’s value for money reports. Aviva cited that their value assessment also suggests it is in investors' best interest to wind up the fund. The problem is, fund management groups won’t always come to this conclusion, or take strong enough action. The Aviva wind-up comes after multiple headwinds, including a year-long suspension.

“Value for money reports are very difficult for investors to find – they are buried rather than in a prominent position on the fund firm’s website. I am not alone in having this view – a working group of CFA Society of the UK members could only locate three-quarters of them, despite emails and phone calls to fund groups.

“Value for money statements have been positive for investors – a number of fund firms have taken action on funds failing to deliver, either through undertaking a review of the fund, reducing fund charges or closing down funds. But they have not being a complete success. We need to let investors be easily able to assess these important reports, rather than leaving it to the fund management groups to police.”

Under new rules set out by the Financial Conduct Authority, which came into effect in September 2019, fund management firms are required to publish annual fund reports on the ‘value for money’ of their fund products. The reports must be publicly available on the fund manager’s website.

Aviva closure

The Aviva UK Property fund, which has around £367 million in assets, was suspended in March 2020 due to liquidity concerns, alongside a swathe of other open-ended property funds, during the start of the Covid-19 pandemic. The funds at the time were closed due to the uncertainty of property values given the unprecedented nature of the situation.

Several of the funds were reopened, such as Columbia Threadneedle and Aberdeen Standard Life. Aviva, however, remained closed.

Investors in the fund will receive an estimated 40% of their cash. The remainder will be subject to the sale of the fund’s assets over the next one to two years.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.