Newspaper article The Journal (Newcastle, England)

Investing for the Longer-Term

Newspaper article The Journal (Newcastle, England)

Investing for the Longer-Term

Article excerpt

THE Brexit referendum outcome had ramifications for property funds as investors rushed to cash in their holdings on concerns prices would fall due to weaker demand.

Indeed, many open-ended UK commercial property funds made "fair value adjustments" to their funds to reflect the potential for a fall in the underlying property values.

These adjustments did not prove enough to stem outflows and we have steadily seen large funds suspend trading to protect their portfolios.

This action prevents the purchase or redemption of units in the fund. Whilst the units are priced daily in an open-ended fund, selling a property to meet redemptions takes time and this can lead to a liquidity mismatch when many investors seek to disinvest.

Some property funds had already been holding high levels of cash in anticipation of a situation where such liquidity would be needed to meet redemptions and as a result have remained open for now.

Redemptions on many other funds have eroded cash holdings to a level that the managers felt they had to stem outflows.

Suspending trading allows time for assets to be sold in a timely fashion rather than by fire sale, enabling a more competitive price to be sought.

This is in the interest of both unit holders wishing to remain in the fund and those wishing to sell.

Lowes' Investment Managers are sticking with property holdings, not all of which have suspended trading. It is worth nothing that overseas demand for property could ultimately be boosted by the fall in sterling.

Whilst our property funds have delivered strong capital growth over the years, we hold them as a different source of income generation to others within client portfolios.

Over the longer term, 75% of the return from commercial property comes from rental income and it is within our income producing portfolios that we take our exposure. …

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