First 50 Funds update: Henderson UK Property to re-open doors to investors
Henderson was one of a number of property managers to temporarily suspend trading, in order to protect existing investors against the impact of a rush of redemptions in the wake of the UK's vote to leave the European Union in June.
Some of those funds, including those run by Legal & General, Columbia Threadneedle and Canada Life, have already moved to remove exit penalties and suspensions, while Henderson will re-open its UK property fund on 14 October.
In a statement on the fund’s portfolio, the manager says that during the suspension period 23 assets have either been disposed of or are under offer to be sold. It stated: “The focus remains on holding a strong portfolio of defensive, core assets with a mix of robust tenants on long leases across all sectors. The portfolio provides an attractive net historical income yield of 3.2% (4% estimated gross yield for eligible investors), which, in the form of contractual rental income, offers a steady income stream and remains attractive relative to bonds and equities.”
M&G property remains closed
The other open-ended property fund in our First 50 Funds selection is M&G Property Portfolio, which also temporarily suspended trading after the Brexit vote.
M&G has not put a timetable on when it will re-open its fund.
However, according to a report in our sister title Money Observer, the fund’s manager Fiona Rowley says she is working hard to re-open the fund, with some of its larger investors now looking to re-invest.
“Obviously there's no room for complacency,” she says. “I'm not going to say we're out of the woods yet, but I am confident supply fundamentals are supportive. We are going to have some short-term headwinds, but I'm confident in the medium term about the fundamentals of this asset class.”
Ms Rowley says at M&G there has been an “orderly disposal” of what she terms “good secondary assets”.
This means the fund is likely to retain a majority of prime property after disposals have been completed.
M&G says it is aiming for a cash level above 15% before it re-opens the Property Portfolio fund, with around £350 million worth of properties set to be sold at an aggregate discount to pre-Brexit levels of 3%-4%.
“Investors better off in closed-ended vehicles”
Laith Khalaf, a senior analyst with Hargreaves Lansdown comments: “The fundamental problem with investing in property via open-ended funds has not gone away, and may well rear its head again. Liquidity concerns will continue to hinder the investment strategy of funds in the sector and will prompt managers to hold high levels of cash, so a fair whack of investors’ capital will be returning next to nothing.
“Investors want property in their portfolio for diversification and income, both of which are in short supply right now, thanks to central bank policy. Investing in this area does come with high transactional and ongoing costs, but if investors do wish to gain exposure they are probably better off accepting the additional volatility of closed-ended vehicles, rather than investing in an open ended fund where the manager is working with one arm tied behind their back.”
The closed-ended recommendation in our First 50 Funds is F&C Commercial Property Trust, which is currently trading at a 6.5% discount to the value of assets in the portfolio.
The general term for the rate of income from an investment expressed as an annual percentage and based on its current market value. For example, if a corporate bond or gilt originally sold at £100 par value with a coupon of 10% is bought for £100 then the coupon and the yield are the same at 10%, or £10. But if an investor buys the bond for £125, its coupon is still 10% (or £10) and the investor receives £10 but as the investor bought the bond for £125 (not £100) the yield on the investment is 8%.
An interchangeable term for shares (UK) or stocks (US). Holders of equity shares in a company are entitled to the earnings and assets of a company after all the prior charges and demands on the company’s capital (chiefly its debts and liabilities) have been settled. To have equity in any asset is to own a piece of it, so holders of shares in a company effectively own a piece proportionate to the number of shares they hold. (See also Shares).