Aberdeen Asset Management has cut the dilution levy on its UK property fund to 1.25%, which was the level in place prior to the EU referendum on 23 June.
Following the Brexit vote Aberdeen had imposed a 17% dilution levy on investors who rushed to cash in their holdings in addition to a temporary suspension for three days. Even though the dilution levy has been cut to 1.25%, Aberdeen may increase it without notice depending on the daily flows into and out of the fund.
The Aberdeen property fund has experienced significant price movements since the outcome of the EU referendum. In the three weeks following the referendum the fund declined 20%.
Returning to normality?
Over this time period the Aberdeen fund was the worst-performing fund available to retail investors, closely followed by Kames', Legal & General's and F&C's property funds. But, thanks to the reduction in the dilution levy, the price is now 14% higher than the fund's low point of 13 July.
Laith Khalaf, senior analyst at Hargreaves Lansdown, says: “This reduction in Aberdeen's dilution levy hopefully shows things are getting back to some measure of normality in the UK property fund sector.”
The price movements of property funds over the past month have been quite breath-taking, particularly when considering that many investors will have chosen property as a safer alternative to the stock market, says Khalaf.
Yet in the three weeks following the Brexit vote, some of the biggest property funds saw more dramatic price falls than any UK equity funds, which are typically deemed to be riskier.
“This reflects a fundamental weakness in the structure of open-ended property funds, rather than extreme volatility in the underlying commercial property market itself,” adds Khalaf.
“While things appear to be calming down for property funds, dilution levies are entirely dependent on fund flows and applied without prior notice, so investors are still playing lucky dip when they buy or sell one of these funds at the moment.”
This story was originally written for our sister magazine, Money Observer.