For adviser use only
The recent suspension of M&G Property Portfolio has again highlighted the practical implications of investing in assets that are not immediately realisable. There have been around £1bn of net outflows this year alone from UK Property, with Brexit uncertainty and associated caution weighing on the sector.
Déjà vu?
Investors will remember a number of fund suspensions immediately following the Brexit referendum in 2016, which have since lifted. In addition, M&G also suffered a recent downward revaluation instigated by their independent valuer. There is no guarantee this won’t happen in the future with one of the funds we hold, but for now this element appears to be somewhat fund specific.
Protecting investors
While we can’t predict whether other fund suspensions will follow, we would urge investors to remember why a fund may suspend in the first place – it is a process designed to protect them. This is preferable to a quick-fire sale of underlying assets and the risk of selling below fair value.
The importance of due diligence
Across our core solutions, Parmenion Investment Management invest in L&G, Threadneedle and SLI UK Real Estate Income to gain direct UK Property exposure. We are in continued dialogue with each manager. All three of these funds are managed in a risk centric manner. L&G hold a 25% cash position, for example. As part of our annual due diligence, cash levels and fund flows are closely monitored, and we have regular formal reviews with the fund managers.
In it for the long term
On the understanding that it is a long-term investment, we continue to believe in the merits of bricks and mortar property within a multi asset portfolio. This is due to the uncorrelated return profile versus both Fixed Interest and Equities, which is not the case with Real Estate Investment Trust exposure. Holding shares in property companies naturally leads to a closer correlation with wider equity markets.
2018 was an example of the benefit that direct Property exposure can bring to a portfolio; providing a return of approximately 4% that year. This diversifying characteristic unfortunately comes alongside a less liquid structure, but long-term investors can generally tolerate this risk in the same way that we accept higher volatility from equity markets in exchange for the potential for higher returns.
This article is for financial professionals only. Any information contained within is of a general nature and should not be construed as a form of personal recommendation or financial advice. Nor is the information to be considered an offer or solicitation to deal in any financial instrument or to engage in any investment service or activity. Parmenion accepts no duty of care or liability for loss arising from any person acting, or refraining from acting, as a result of any information contained within this article. All investment carries risk. The value of investments, and the income from them, can go down as well as up and investors may get back less than they put in. Past performance is not a reliable indicator of future returns.