04 Mar 2020
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M&G have recently issued an update on their property portfolio, reporting the continuation of the suspension in dealing in its shares but stating that good progress has been made in raising cash levels. At the end of January 2020, the cash held by the fund was 4.8%. With £245 million of assets in solicitors’ hands or under offer, M&G is on course to raise cash levels to 16%, assuming all deals complete. Retail represents 80% of the total, which will reduce the fund’s exposure to the sector from 38% to 32%. Tony Brown, Global Head of M&G Real Estate says ‘We are making good headway in a more liquid market and every effort is being made to ensure we can re-open as soon as possible’.
All property funds have faced tough times recently with the online shopping boom affecting the value of retail property and the obvious pressures caused by Brexit, but it looks like there is light at the end of the tunnel.
In our Rfolios, we feature the BMO Property Trust. The investment case in the BMO fund is a different proposition and we use it in 4 out of our 7 growth portfolios. Last year, the BMO fund faced similar pressures to those affecting the whole sector and during the summer, moved its pricing convention from an offer to a bid structure, resulting in a drop in the Net Asset Value (NAV) for investors.
In times of negative sentiment, fund managers will price more conservatively to give a true reflection of value. The BMO fund was the last fund to change to a bid price strategy and announced this month that it’s in a position to move back to offer pricing. Great news for the unit holders who’ve had a 4.5% uplift in the value of their fund overnight. Over the last few months, BMO have had positive inflows of money from investors and the fund now stands at around 28% cash levels. The trust is looking in such good shape that the managers are actively engaged in new property purchases.
How have BMO achieved this? The ethos behind the management of the fund and the skill of the managers clearly play a part, as does lower exposure to retail properties within the fund and the size of the properties themselves. Smaller properties are easier to buy and sell, creating positive inflow, an uplift in the NAV and good sentiment. The strategy used by BMO has meant that the fund has been able to overcome the hurdles faced by the sector, producing positive returns for unit holders.
In the portfolio mix, investment in property funds in general can provide favorable exposure, but a spotlight on how the fund operates and the strategies it employs can make all the difference.
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