SO, THE PEOPLE WERE GIVEN
THE CHOICE AND THEY
HAVE CHOSEN. Conclusively. The
coming days and weeks will likely be
underscored by confusion, noise and
opinion, all things we categorically
know that markets do not like.
Not only
are we out of
the European
Union, but
we are left
with a brand
new Prime
Minister
and no real
certainty as
to whether
or not a snap General Election will be
triggered.
The unprecedented fall of Sterling
against the US Dollar and Euro as well
as the significant initial falls of the
FTSE 100 are indeed early signs of
volatile times ahead. I have no doubt that you will likely want to know what
the implications of leaving the EU are
for your portfolio; especially given the
particularly mendacious coverage being
readily provided by news outlets.
But it is worth bearing in mind that
for investors, all of this is opportunity as much as it
is scary. I have
always had a
poster in my
office – Russell
Investment’s
rollercoaster
of investor
emotions: we’re
all on that
rollercoaster right now and as tempting as it might
be to cash out, it isn’t the answer.
Volatility is always uncomfortable, but
it does provide opportunity. As I write
this, the FTSE 100 and other major
European markets have all posted
significant daily gains.
It is also worth remembering that
Britain is a small part in the global
economy and this is often re ected
in most managed investment funds.
It is likely you will have holdings all
over the world and in a number of
different asset classes, which should
help minimise the impact of the
result.
I’m sure that more details will
emerge over the course of the next
few weeks and months that will
hopefully allow the dust to settle
somewhat. But in the event that you
do nd yourself a little uncertain and
afraid, this article should serve as a
reminder that this is all part of the
journey and that these short-term
shocks are not symptomatic of the
journey as a whole.
Update on commercial
property funds
Despite some early volatility, the
investment market fallout from the
UK’s referendum decision has been
fairly benign.
Perhaps one of the more significant
Brexit consequences to date was the
decision taken initially by Standard
Life and M&G Investments (and
quickly followed by many other
companies) to suspend trading in their
UK property funds.
Both companies have blamed
“exceptional
market
circumstances” which followed
the result of the
EU referendum.
Open-ended
property investment
funds, such as
Standard Life
Investments
UK Property and M&G Property
Portfolio, occasionally have to
suspend trading when large numbers
of investors ask to withdraw their
money.
This is because property is a fairly
dif cult asset to trade; the fund
manager would not want to rush to
sell large commercial properties to
satisfy redemption requests, as doing
so would disadvantage the other
investors in the fund.
These are both funds valued in
the billions and invest in commercial
property across the UK, including
offices, retail premises and
warehouses. The funds also contain
some cash and shares in property
and land companies, which helps to
manage liquidity during most normal trading circumstances.
According to statements from both companies, these suspensions were
“requested to protect the interests of
all investors in the fund”.
It is worth noting that these property
fund suspensions do not happen very
often. The last time UK commercial
property funds were forced to suspend
trading was eight years ago during the
global financial crisis, when redemption
requests also prompted a brief
suspension in redemptions.
Standard Life Investments and M&G
have both decided to suspend trading
after initially changing the pricing basis
of their respective funds, effectively
introducing a 5% penalty for investors
selling their units.
Henderson and Aberdeen have also
changed the pricing basis of their
property funds in light of Brexit,
effectively reducing the value of
holdings by 5% for investors who
choose to sell.
Standard Life Investments plan to
remove the suspension as soon as
practicable and will in any case review
the decision every 28 days.
Within our financial planning
business, we have a number of
clients with holdings in many of the
property funds that are affected and
these actions have not given us any
immediate cause for concern.
Any holding
in a property
fund is limited
to a relatively
small part
of an overall
investment
portfolio,
which means
other assets
are readily
available in case urgent redemption is needed. In
any case, our clients invest with long-
term investment goals in mind, so will
not panic into selling their holdings
because of a bout of short-term
market volatility or uncertainty.
Commercial property remains
a sensible investment choice for
some allocation within a diverse
investment portfolio. It offers useful
diversification, with its negative
correlation to other investment assets.
UK commercial property is still
offering attractive yields relative to cash
and fixed income.
Any investors concerned about the
impact of the referendum result on
their investments should of course
speak to their appointed financial
planner for further advice and support.
