Mixed fortunes for property funds since last summer

The recovery of the UK property funds that were hit by redemptions in the weeks after the EU referendum has been mixed, analysis by Property Week has revealed.

Open-ended property funds for retailer investors were the subject of large outflows in the wake of the Brexit vote that forced seven of them to temporarily suspend trading. A year later, these funds are on average about 13% smaller than they were at the time of the referendum, according to their latest fund factsheets.

However, the fortunes of individual funds have varied. Some are now nearly back to the size they were on 23 June last year and one, BMO Real Estate Partners’ F&C UK Property fund, is bigger.

“The liquidity event of 2016 caused some funds to suspend, but the F&C UK Property Fund remained open due to its strong wealth management client base and low risk of the assets in the fund,” said Guy Glover, fund manager at BMO. “Importantly, the fund has also acquired in excess of £45m of assets throughout the period, adding to the income return and diversification.”

Others funds remain significantly smaller than they were at the time of the referendum. The Aberdeen UK Property fund has shrunk the most – by about £1bn. Weeks after the vote, Aberdeen Asset Management opted to sell assets faster than other fund managers in order to rebuild its cash position and restart trading quickly.

In recent months, most fund managers have reported that capital flows have stabilised. “Fund flows are broadly neutral, with the attractiveness of property’s stable income return a key consideration in investors’ views on the asset class,” said Fiona Rowley, fund manager at M&G Investments.

Cash buffers vary

But there are concerns that open ended funds remain vulnerable to market shocks. “If we see further stress in the market and further withdrawals, we will see those problems reappearing,” said Laith Khalaf, a senior analyst at investment platform Hargreaves Lansdown.

Property Week found that current levels of cash or cash equivalents that funds hold, which act as a buffer in the event of redemptions, vary significantly from fund to fund, from as little as 14% to 24.6%.

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