The £5billion property slump
After M&G fund bans withdrawals, figures reveal...
BRITISH property funds have lost nearly £5bn this year as the crisis on the High Street hammered shop valuations and triggered an exodus of investors.
The combination of savers rushing to withdraw money and poor performance has caused the sector to shrink by £4.7bn to £22.6bn in the first ten months of 2019.
The toll, revealed by the financial data firm Morningstar, emerged after investors were locked out of Britain’s biggest commercial property fund for the second time in three years.
The £2.5bn M&G Property Portfolio fund was suspended on Wednesday after the manager was unable to sell shops and offices quickly enough to repay backers who were pulling their savings out.
Analysis from Morningstar shows £1.5bn has been withdrawn since the start of 2019. It said this leaves a total of almost £4.2bn in Property Portfolio and its ‘feeder funds’, which funnel cash to the main fund.
Withdrawals ballooned as property values across the UK were battered by shoppers shunning the High Street in favour of buying online, as well as uncertainty caused by Brexit and the General Election. Separate figures from the Investment Association showed £3.4bn had been pulled by savers from UK property funds so far this year.
M&G said the fund’s suspension was in the best interests of investors because it will mean it can sell assets at a decent price. But investors could be unable to access it for some time, with M&G freezing the same fund for four months in the aftermath of the Brexit referendum in 2016.
The latest suspension has sparked fears that other property funds with similarly large outflows could soon follow suit.
Analysis of separate data by the investment platform AJ Bell found that others affected this year include Standard Life Aberdeen, Janus Henderson and Columbia Threadneedle.
The Aberdeen UK Property fund has seen outflows of £1.1bn when feeder funds are included.
Janus’s UK Property fund has lost £760m over the same period and Threadneedle UK Property has lost £331m, while the Standard Life Investments UK Real Estate fund lost £203m.
Yesterday, spokesmen for the funds said they remained open and that levels of liquidity were being closely watched. But investors will be on high alert after several funds were suspended after the 2016 referendum.
Many savers have already been stung by the crisis that sparked the collapse of Neil Woodford’s investment empire, when thousands were blocked from accessing their money in his flagship fund and still had to pay fees.
Laura Suter, personal finance analyst at AJ Bell, said October was the 13th month in a row of overall outflows from UK property funds, adding: ‘Investors have shunned property funds this year. Some have seen heavy outflows.’
Some funds were better prepared, she said, by ‘shoring up cash levels in preparedness’.
For example, just 5pc of the M&G fund was held in cash at the end of October, but at Threadneedle the figure stood at 10pc and at Janus it was 16.7pc. The Aberdeen and Standard Life funds, which have the same parent company, had cash positions of 12.7pc and 15.7pc respectively.
The M& G suspension has reignited debate about so-called ‘open-ended’ funds and whether they should be allowed for assets such as property, which can be difficult to sell in a hurry.
AJ Bell founder Andy Bell said investors should expect to be shut out of property funds during periods of turmoil because swings in the market were ‘a natural course of business’.