Insights banner

Daily traded fund outflows cast a misleading picture for property

Comments from the article below were published in Portfolio Adviser on 22nd April 2021. Access their on-line version here or read the full article below

 

28 April 2021

Daily traded fund outflows cast a misleading picture

 

On the face of it, the figures from the daily traded property funds paint a negative picture for commercial property with outflows of £128 million in January, £314 million in February and a record £589 million in March. IMA figures show that £4bn has been withdrawn from these funds since the Brexit Referendum. At Mayfair Capital, we believe this activity is stimulated more by structural issues with these funds rather than pessimism towards the asset class. In recognition of the shortcomings, the FCA is proposing to exclude ISA investors from investing whilst also introducing a 180 day redemption notice period. These impending measures alone have stimulated selling activity.

 

The changes are a recognition that the design of the daily traded funds is fundamentally flawed. There is a mismatch between the illiquidity of the underlying asset within a daily pricing ‘wrapper’. When markets move in response to shocks (Brexit, Covid etc) investors anticipate the fall in commercial values and attempt to exit at what is effectively an historic price. The resultant rush for the exit inevitably leads to fund closures in order to protect remaining investors. Some daily traded funds have been closed (or gated in the industry parlance) for over 12 months now, implying that the demand for redemptions remains very high requiring assets to be sold to raise cash. A further flaw with this approach to liquidity management is that managers sell their best and most liquid assets first, leaving a rump of more secondary property, impliedly even less liquid and prone to valuation weakness.

 

M&G Investments have just announced that it is opening its daily traded fund after 16 months from closure. After selling activity, the fund has 33% in cash implying that this will be sufficient to meet redemption requests.

 

At Mayfair Capital, we welcome the FCA’s proposals and it remains to be seen how popular the funds will be in their new format. Retail investors may feel that real estate investment trusts are a more attractive means of gaining exposure to commercial property if they are willing to accept the risk of higher volatility in return for instant liquidity. UK REITS, particularly those with a low or zero retail exposure, have performed well this year with yields of 3% to 4% available. However, given that they are investment trusts, they trade at a premium or a discount, whereas daily traded funds are priced on a net asset value basis in normal conditions.

 

The institutional market, as represented by the funds in the MSCI/ Association of Real Estate Fund’s Index, has avoided these problems. They are generally owned by institutional investors with private investors all but absent. The institutional funds have seen outflows but the redemption provisions, in most cases, such as those incorporated in Mayfair Capital’s Property Income Trust for Charities, are fit for purpose.

 

In conclusion, the selling activity in the daily traded funds should not be interpreted as a malaise in the commercial property sector. The recent experience of retail investors means that their appeal is diminished and they are set to be a less relevant vehicle in the future. In the meantime, prospects are improving for returns from property as the economy moves out of lockdown and investor confidence returns.

 

James Thornton - Non-Executive Chairman

 

Enquiries

For press enquiries, please contact:

KL Communications T: +44 203 995 6676

For Fund management enquiries, please contact:

Simon Martindale T: +44 20 7495 1929

Error loading Partial View script (file: ~/Views/MacroPartials/Meet the Team block.cshtml)
Property Income Trust for Charities

A Fund managed by Swiss Life Asset Managers UK Limited

Terms & Conditions

This website is not suitable for retail clients

Information on this Site

The information on this site is issued by Swiss Life Asset Managers UK Limited ("Swiss Life Asset Managers UK"), a company incorporated in England and Wales under number 04846209, authorised and regulated by the Financial Conduct Authority ("FCA") with FRN 229228 and its registered office is at 55 Wells Street, London, W1T 3PT.  Swiss Life Asset Managers UK is a member of Swiss Life Asset Managers.

The Property Income Trust for Charities (“PITCH”) is a pooled property vehicle, in the form of a UK exempt unauthorised unit trust, which is managed by Swiss Life Asset Managers UK.

The following terms and conditions apply to the use of this site. By using this site, you consent to these terms and conditions and the privacy policy and cookies policy available on this site. If you do not accept these terms and conditions, privacy policy and cookies policy, you must not use this site.

Sales Restrictions

PITCH is not a recognised collective investment scheme for the purposes of the Financial Services and Markets Act 2000 of the United Kingdom (the "Act"). The promotion and the distribution of offering materials in relation to PITCH in the United Kingdom is accordingly restricted by law.

PITCH is categorised by the FCA as a Non-Mainstream Pooled Investment which cannot be marketed to the general public.  PITCH is only available to charities who qualify under section 96 or 100 of the Charities Act (2011) or section 25 of the Charities Act (Northern Ireland) 1964 (“Eligible Charity”).

PITCH is not regulated under the UK's financial services regulations and investors will not benefit from the rules and regulations made under the Act for the protection of investors as would apply to authorised schemes, or from the Financial Services Compensation Scheme.

The information on this site is for information purposes only and does not constitute an offer to sell or a solicitation of an offer to subscribe for units in PITCH.  The information on this site does not constitute a recommendation or investment advice and should not be relied upon. Should you have any queries about PITCH, you should contact your financial adviser.

Risk Factors

The value of investments may go down as well as up, and investors may not get back all or any amount originally invested. Income or other returns from investments are subject to change and may be lower than estimated. Past performance is not a reliable indicator of future performance.

PITCH invests in real property in the UK and uses leverage which means the fund may be subject to higher risk and volatility than other funds and may not be suitable for all Eligible Charity investors.  Further, PITCH’s portfolio of assets may lack diversification thereby increasing the risk of loss.

The levels and bases of and reliefs from taxation may change. Any tax reliefs referred to are those currently available and their value depends on the circumstances of the individual investor. Investors should consult their own tax adviser in order to understand any applicable tax consequences.

Accuracy of Information

Information on this site (including any expression of opinion or forecast) has been obtained from, or is based on, sources believed by Swiss Life Asset Managers UK to be reliable, but is not guaranteed as to its accuracy or completeness and should not be relied upon. The information is provided without obligation on the part of Swiss Life Asset Managers UK and on the understanding that any person who acts upon it or changes their investment position in reliance on it does so entirely at their own risk.

Information is current only as at the date it is first posted and may no longer be true or complete when viewed by you. All information may be changed or amended without prior notice although Swiss Life Asset Managers UK does not undertake to update this site regularly. Swiss Life Asset Managers UK shall not be obliged to remove any outdated information from the website or to expressly mark it as being outdated.

No Liability

Whilst reasonable steps have been taken to ensure the accuracy and completeness of the information on this site, no representation, warranty or undertaking is given as to the accuracy or completeness of the information by Swiss Life Asset Managers UK or any of its associated companies and no liability is accepted by such persons for the accuracy or completeness of such information. In no event will Swiss Life Asset Managers UK or any of its associated companies be liable to any person for any direct, indirect, special or consequential damages arising out of any use of the information, or on any other hyper-linked site, including, without limitation, any lost profits, business interruption, loss of programs or data on your equipment, or otherwise, even if Swiss Life Asset Managers UK is expressly advised of the possibility or likelihood of such damages. This does not exclude or restrict any duty or liability that Swiss Life Asset Managers UK has to its customers under the regulatory system in the United Kingdom.

You should be aware that the internet is not a completely reliable transmission medium and access to and use of this website is at your own risk. Swiss Life Asset Managers UK does not accept any liability for any data transmission errors such as data loss or damage or alteration of any kind, including, but not limited to any direct, indirect or consequential damage, arising out of the use of the products or services referred to herein. Furthermore, we accept no liability in respect of losses or damages arising out of changes made to the content of the website by unauthorised third parties. This does not exclude or restrict any duty or liability that Swiss Life Asset Managers UK has to its customers under the regulatory system in the United Kingdom.

Indemnity

You agree to indemnify, defend, and hold harmless Swiss Life Asset Managers UK and its directors, officers, employees, agents, licensors and affiliates from and against any and all claims, liabilities, damages, losses, or expenses, including legal fees and costs, arising out of or in any way connected with your access to or use of this website and the information.

Copyright, Trademarks and Other Rights

Copyright, trademarks, database rights, patents and all similar rights in this site and the information contained in it are owned by Swiss Life Asset Managers UK, its licensors or relevant third party providers. You may use the information and reproduce it in hard copy for your personal reference only. The information may not otherwise be reproduced, distributed, stored or transmitted without Swiss Life Asset Managers UK’s written consent. Nothing on this site should be considered as granting any licence or right under any trademark of Swiss Life Asset Managers UK or any third party.

Internet e-mail

Messages sent over the internet cannot be guaranteed to be completely secure. They could be intercepted, lost or possibly altered. Swiss Life Assset Managers UK cannot and will not take responsibility for this, and will not be liable to you or anyone else for any damages or otherwise, in connection with any message sent, either by you to Swiss Life Asset Managers UK, or by Swiss Life Asset Managers UK to you, over the Internet.

Linked Websites

This site may be linked to third party websites or contain information provided by third parties. These links are provided only as a convenience. Swiss Life Asset Managers UK does not make any representation as to the accuracy or completeness of such websites or information, has not and will not review or update such websites or information. You acknowledge and agree that, as you have chosen to enter the linked website, use made of such websites or information is at your own risk. Swiss Life Asset Managers UK does not accept any liability arising out of the information contained on any linked website or information provided by a third party and the use of such sites and information is at your own risk. This does not exclude or restrict any duty or liability that Swiss Life Asset Managers UK has to its customers under the regulatory system in the United Kingdom. You should also be aware that the terms and conditions of such website and the website's statement relating to the collection and use of your personal information may be different from those applicable to your use of this website.

Governing Law

You agree that your use of this site and any dispute arising from the use of this site is subject to English law and you submit to the jurisdiction of the English courts.