M&G reopens property fund after retail properties sold
The decision to lift the suspension has been taken by the fund’s authorised corporate director (ACD) and its depositary, who are now satisfied the fund has a suitable liquidity position for customers who wish to sell their investment and for those who wish to remain invested.
A total of 38 carefully selected properties have been exchanged or sold by the fund’s manager, Justin Upton, resulting in reduced portfolio risk, strengthening the fund’s income stream and decreasing the vacancy rate to 7.2%. All assets sold or exchanged during suspension were at a combined -0.1% discount to their net asset value, of which 38.8% were disposals of retail properties. Cash now stands at 33.2%.
M&G suspended the property portfolio in December 2019 amid a jump in investors asking to withdraw their savings. Then as the coronavirus pandemic evolved causing fresh market uncertainty, M&G continued its suspension of the property fund on a month-by-month basis.
At a sector level, the fund has reduced exposure to retail from 38.4% to 28.1% and is now overweight to industrials. Assets in the office sector are focused on central business districts. The portfolio’s exposure to prime and good secondary assets will enhance distribution potential. More than 90% of both rental income and service charges for 2020 has been collected and the fund has delivered an income distribution of 4.7%.
Laurence Mumford, chair of the fund’s authorised corporate director, M&G Securities Limited, said: “We deeply regret the inconvenience that suspension has caused our customers and clients. The decision to suspend was taken to protect the interests of all of our investors, enabling the fund manager to sell assets in an orderly fashion. We believe this has preserved value for customers, while also maintaining the integrity and future prospects of the fund.”
M&G is also making several changes to the funds, including the pricing methodology, which will change to dual pricing on a full spread basis from 25 June.
In recognition of the inconvenience caused to customers and clients, M&G has waived 30% of the funds’ annual charge during suspension. This will continue until the fund reopens. M&G will also continue to waive the fee on cash held above 20% until the end of 2021.
Moira O’Neill, head of personal finance at Interactive Investor, said: “Investors in these M&G funds will be relieved to learn they can soon access their investment after a 16-month deep freeze. They may also have some thinking to do about what to do next, but there may be few easy answers.
“Last year the FCA launched a consultation on the liquidity mismatch in open ended property funds, and the results are expected sometime this year. While welcome, the issues around investing in illiquid assets such as property via open ended funds came to the spotlight almost five years ago, as a wave of property funds suspended following the UK referendum result. Prior to that, a number of property funds put suspensions in place during the global financial crisis.
“Whatever the outcome of the review, investors who have been stung by property fund suspensions could be forgiven for avoiding open ended property funds in the future on the basis of ‘Fool me once, shame on you. Fool me twice, shame on me’. There’s no guarantee that the FCA’s proposals will solve the issue entirely so we would suggest investors keep an open mind and consider alternatives.”