Interactive Investor

History keeps repeating on property funds, says interactive investor

18th March 2020 12:03

Dzmitry Lipski from interactive investor

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Our head of funds research Dzmitry Lipski gives his take on the latest property funds saga.

It was a case of déjà vu for investors and commentators alike on the news that within just a few days, Aviva's UK Property fund has gone the same way as Kames Property Income fund and the Janus Henderson UK Property PAIF fund – all suspended as a result of uncertainty over property valuations amid the coronavirus-linked malaise in global markets. 

This kind of contagion was last seen in 2016 when several property funds were suspended following the 2016 UK EU referendum vote and comes just a few months on from M&G Property Portfolio in December 2019. 

Dzmitry Lipski, Head of Funds Research, interactive investor, says: “History does repeat itself and questions again how appropriate open-ended funds are to gain exposure to illiquid asset such as property.

“While most funds provide daily dealing, some underlying holdings often take much longer to sell and therefore need to hold cash positions for liquidity reasons, to meet redemptions or to manage large inflows. 

“While this is a short-term illiquidity issue for open-ended funds, long-term investors who have a well-diversified portfolio, and do not need short-term capital or regular withdrawals, should not panic. 

“Nevertheless, going forward, the penny should now be dropping: closed-ended property funds are the better choice as they offer greater liquidity via daily trading. Due to their closed-end structure, investment trusts can be fully invested without concerns over liquidity.

“But investors should also be aware that while closed-ended property funds do offer greater liquidity, it sometimes comes with larger drawdowns as their prices can be influenced by external factors other than actual property valuation. Discounts will likely be in for a volatile ride, and gearing can also hurt in a downturn, but the structure means managers can take a long term-view and investors can get out if they absolutely need to. And for anyone brave enough to buy – they can.”

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.

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