BMO lifts property fund trading suspension
BMO lifted the trading suspension on its Property Growth & Income fund (and feeder fund) after midday today following the easing of certain restrictions previously imposed because of coronavirus, as well as improvements seen in market liquidity and transparency in the industrial and logistics sectors.
A statement read: “BMO Global Asset Management (BMO GAM) can confirm it has resumed dealing in the BMO Property Growth & Income Fund (and the BMO Property Growth & Income Feeder Fund), following the Fund’s standing independent valuer removing material uncertainty from valuations covering the industrial and logistics sectors in the UK.
“Whilst c.7% of the fund’s assets will still be subject to material uncertainty, this is well below the suspension trigger set by the FCA (20% of total assets being subject to material uncertainty qualification), allowing dealing to be resumed in the funds.”
Investors in the fund will be able to place trades from 4am on Tuesday 16 June, though those investors of the feeder fund can place trades today.
BMO noted that the fund suspension on 18 March wasn’t related to any liquidity event.
It added that during suspension, the fund has returned 18.9% (A share class Accumulation, from 18 March 2020 to 10 June 2020).
The statement continued: “Despite dealing being suspended in the fund since 18 March 2020, it has been a busy period of asset management for the fund’s physical property portfolio. Since the beginning of March 2020, the fund has concluded various transactions across the portfolio, including new lettings and lease renewals.”
The current positioning of the portfolio is as follows: cash – 5%, physical property – 28%, equities – 67%.
‘First out of suspension’
Ben Yearsley, director, Shore Financial Planning, said: “It’s good news that BMO Property Growth & Income fund has re-opened.
“However, this is a hybrid fund with only 30% physical property so it’s no surprise it’s one of the first out of suspension.”
In the months to March, a number of property funds suspended dealing amid market uncertainty, trapping an estimated £8bn of investor money, according to investment firm, AJ Bell.
Laura Suter, personal finance analyst at AJ Bell, said while BMO is the first to re-open to investors as a clearer picture of valuations emerges in some parts of the property market, investors shouldn’t expect a flood of re-openings after this news.
She said: “The BMO Property Growth and Income fund only has around 30% of its money in direct property, with the rest in the shares of property-related companies, while many in its peer group will have much higher direct property exposure. What’s more, of the property it does directly hold, the bulk is in industrial property, rather than offices or retail where the outlook remains more uncertain.
“As the fund’s valuer now has more clarity about the industrial and logistics sector of the market, the fund can re-open as it has a clearer idea of what its holdings are worth. The fund says there is still uncertainty about the value of a proportion of its holdings, but below the regulator’s 20% limit, meaning it can re-open.”
Suter added that it will be interesting to see how investors react to the reopening.
“Many property funds have been shoring up cash levels in anticipation of outflows when investors are allowed to buy and sell in the fund again. BMO only had just over 4% in cash at the end of May, but has the ability to sell some of its listed holdings should it face outflows – an option not available to some other property funds.
“When the funds do re-open investors will be able to assess any changes to valuations that have negatively hit their returns. But they also need to look at the income they’re getting from property funds too. Many people buy property funds as a source of income, but with rents received being lower and the likelihood of vacant periods in some shops or offices, investors are likely facing a cut to the income they receive. At this point they need to assess whether the property sector is still sufficiently attractive for their money.”
The table below shows which property funds have been suspended, fund size and their performance: