UK Commercial Property Fund Suspensions
We have seen over the past week a number of UK Commercial Property funds suspend trading. This has been widely covered by main stream media outlets.
The first to suspend trading was Standard Life. We currently use Standard Life predominantly in our model portfolios of which the majority of our clients will be invested.
This commentary is to help you understand the reasons why the suspension has been implemented, how it could affect you and what we see as the future for UK Commercial Property.
Standard Life, like many UK Property funds has witnessed large outflows since the EU Referendum. In May alone, £340m was withdrawn from UK Property funds.
Standard Life did keep a fairly large amount of the fund in cash prior to the referendum. With this being used to meet withdrawal requests, the fund has suspended trading to allow George Shaw and his team time to realise assets at what is a good price to investors.
It could be possible to realise assets fairly quickly, but this would come at a price which would be a low selling price. This would then impact on the returns the fund has made and so reduce values for clients withdrawing monies but also those willing to sit tight.
Although a suspension of a fund brings feelings of the credit crunch when this was last experienced, it is important for clients to understand that this action by Standard Life is reassuring. They are protecting investors who in the long term want to remain invested and beat the poor offerings from cash, and certainly protect themselves against long term inflation.
It is also important to note that many equity funds have seen larger outflows (£439m) during May than those from UK property funds. The main difference is the liquidity of equities compared to property.
So what does this mean to our clients? In the short term, the property fund will continue to be priced daily to reflect the value of the properties it holds. Standard Life will continue to receive rent from its tenants and hold this in the fund. For clients investing in to our models, we are allocating the monies that would have gone to property into Cash. Your adviser will communicate this to you to ensure it doesn’t affect the advice they have given to you. We see this as the right move as although Cash isn’t great in the long term, it will offer security against volatile stock markets and will remain liquid in readiness for buying in to Property funds when they are back open.
For clients taking income, we have the majority of your monies in other funds. The models we run do not go in excess of 20% in property and the majority of investors will be nearer 12%. As such, this means there is 80%+ of your monies in other funds that have performed well during June and so will be ready to supply cash for your income.
Long term we see UK Commercial property being an asset with real value to you. It works well in diversifying risk away from equities which are certainly showing their volatile sides at the moment. Property is also an asset to which we in Britain have a strong emotional attachment. This isn’t likely to change and so sticking by the fund and their decision is right when targeting longer term growth.
Although Brexit has left many nervous about the future of the UK economy, we continue to see strong fundamentals being displayed such as low unemployment and strong real wage growth. These fundamentals are important to commercial property and mean that although there is short term uncertainty, the longer term view is positive.
We would like to remind clients that we are always keen to answer any questions you may have or settle your nerves if you have read or seen something that concerns you. If you have any questions about how your investment has been affected since Brexit than please do not hesitate to contact us where we will always make time for you.