Should you ditch a property fund that locked away your cash? The three choices investors must consider
Funds shut their doors amid fears the Brexit vote could cause a property price crash
After being locked into property funds for three months, savers will soon be able to take their cash out. But should they?
Funds shut their doors at the end of June amid fears the Brexit vote in the EU referendum could cause a property price crash as a flood of panicking savers tried to get their cash out.
Some £14.5billion of savers' money was on lockdown.
The reason was that if there was a run on a property fund – which own actual bricks and mortar – it would be forced into a fire-sale of its assets to raise enough money to give back to investors, which could seriously harm the fund.
In the subsequent months these property fund managers have been quietly selling enough of their assets to build a cash buffer, just in case. Now many are set to lift their suspensions. So investors have three main choices.
A number will have been waiting to grab their money and run. Three months on from the referendum, some areas of property have, as feared, seen a fall in value.
The M&G Property Portfolio is down 5.7 per cent over the past three months, and Aberdeen UK Property is down 4.5 per cent.
Jason Hollands, managing director at Bestinvest, says: 'Investors need to tread carefully.
But it would be wrong to single out UK commercial property as one to avoid entirely since it offers that most rare of attributes: a decent yield.'
Of course, just because you wanted to get your money out three months ago doesn't mean you still do. Darius McDermott, director at Chelsea Financial Services, says: 'Funds which closed stopped any panic-selling and gave investors time to think.
'The vast majority of our clients will be staying invested. The reasons they invested in them – to spread their risk and earn income – have not changed.'
The aftermath of the Brexit vote has not been nearly as catastrophic as many had feared. While managers may have had to sell assets, many have been able to do so at a profit.
The aftermath of the Brexit vote has not been nearly as catastrophic for the property market as many had feared
Fiona Rowley, manager of the M&G Property Portfolio, has completed around £195million of sales since suspending trading in the fund.
Don Jordison, managing director of property at Columbia Threadneedle, has sold or agreed sales on more than 30 properties since July at pre-Brexit valuations.
He says: 'The most important part of the property market – the tenants who pay the rents – appear to have taken it in their stride.'
There is a third option. Investment trusts have not had such an exciting ride.
They are like funds but are listed on the stock market and trade like company shares. What that means is that if lots of investors sell their shares in a property trust, the share price will go down but the manager isn't forced to sell his assets.
It is this crucial difference which leads many experts to prefer to invest in property through trusts.
The downside is that if you do need to get your money out then you might have to sell the shares at a discount to their net asset value, something which wouldn't happen in an open-ended fund.
Hollands says: 'While investment trusts were not immune from post-referendum turmoil, their managers didn't have to start disposing of assets. They have bounced back from their lows and have also provided good returns for investors who bought in at the bottom.'
Some investors do find investment trusts a little more complicated than open-ended funds so they should make sure that they fully understand the benefits and pitfalls of each before choosing which is best.
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