interactive investor's head of personal finance comments on the news.
News today that M&G Property Portfolio and its feeder fund are to reopen in May will come as a relief for investors in the funds and are a reminder of some of the pitfalls when it comes to investing in illiquid assets via open-ended funds.
Moira O’Neill, Head of Personal Finance, interactive investor, says: “Investors in these M&G funds will be relieved to learn they can soon access their investment after a 16-month deep freeze. They may also have some thinking to do about what to do next, but there may be few easy answers.
“Last year, the FCA launched a consultation on the liquidity mismatch in open-ended property funds, and the results are expected sometime this year. While welcome, the issues around investing in illiquid assets such as property via open-ended funds came to the spotlight almost five years ago, as a wave of property funds suspended following the UK referendum result. Prior to that, a number of property funds put suspensions in place during the global financial crisis.
“Whatever the outcome of the review, investors who have been stung by property fund suspensions could be forgiven for avoiding open-ended property funds in the future on the basis of ‘Fool me once, shame on you. Fool me twice, shame on me’. There’s no guarantee that the FCA’s proposals will solve the issue entirely so we would suggest investors keep an open mind and consider alternatives.
“The FCA consultation mooted fixed redemption periods for open-ended property funds, but we had caveats. Unlike the proposals in the consultation, interactive investor believes that the redemption period should be fixed, so as not to cause confusion for investors, and significantly long enough to ensure there is time to address the liquidity mismatch.”
interactive investor prefers investment trusts when it comes to property funds, and we rate BMO Commercial Property Trust (LSE:BCPT) and TR Property (LSE:TRY) on our Super 60 rated list. interactive investor does recommend one open-ended property fund, but it invests in property securities, so the liquidity mismatch is not an issue. It is an option we rate for investors who want to invest in property passively (it is a passive fund) – iShares Global Property Securities Equity Index.
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