M&G Property fund suspends trading

[CrackAddick]

Here we go again. M&G Property fund has suspended all trading due to high outflows.

https://www.mandg.co.uk/investor/articles/property-portfolio-temporary-suspension/

Leaving aside for now why anyone would hold illiquid assets like property in a Unit Trust (FCA are you awake??). Should we expect the usual Retail investor panic and contagion to other property funds and even Property IT/REITS? I can see my NRR holding going south......

[baldchap]

Should we expect the usual Retail investor panic and contagion to other property funds and even Property IT/REITS? I can see my NRR holding going south......

If they do, I may be tempted with cheap trade day approaching.

[dealtn]

Should we expect the usual Retail investor panic and contagion to other property funds and even Property IT/REITS?

Probably, but property is a long term investment. The same fund was suspended for four months in 2016 before rising to even higher levels. Any reason to suspect the asset class won't perform in similar fashion to previous crises and cycles going forward?

[UncleEbenezer]

Well, the fund is quite clear about being invested in property, so it's not in the Woodford league. And I expect it continues to generate income for its investors.

Remind me. Hasn't property in general been heading south? At least, outside the residential sector driven ever higher by taxpayer funds, government never-never, and laundered money?

[barchid]

Uncle
I agree with you, this is hardly a totally unexpected event, it has happened at various times in the past with big name property funds, what it does do though is to further illustrate that open ended funds are less than ideal in which to hold illiquid securities, be they physical property, unquoted stocks, or illiqid quoted stocks even.
Personally I welcome this fall back in MNG shares as a further buying opportunity of a quality company with a high potential yield

[tjh290633]

It's happened before and it will happen again. Funds are totally unsuited to holding property, unless they have a very big number of very marketable properties. When they hold outlet centres or large warehouse complexes, they cannot realise cash quickly enough to cope with mass redemptions. The exception is a fund which invests in property companies, whose shares are instantly saleable.

I am surprised that the lesson has not been learnt by now.

TJH

[Backache]

Well, the fund is quite clear about being invested in property, so it's not in the Woodford league. And I expect it continues to generate income for its investors.

Remind me. Hasn't property in general been heading south? At least, outside the residential sector driven ever higher by taxpayer funds, government never-never, and laundered money?

It's the same basic problem as Woodford though essentially illiquid investments held in a structure that demands liquidity.
As for continuing to generate income the investors have a kind of prisoners dilemma .
If they were all to stay in the fund could ride out the problems however if some leave they sell the liquidity and most marketable properties first so the imperative is for others to leave otherwise you're stranded with the worst assets . It was ever thus with property, the only reason that I can conceive why people buy them is the commissions generated by those who advise them, otherwise the close ended companies are a far more rational way of owning property.

[UncleEbenezer]

Well, the fund is quite clear about being invested in property, so it's not in the Woodford league. And I expect it continues to generate income for its investors.

Remind me. Hasn't property in general been heading south? At least, outside the residential sector driven ever higher by taxpayer funds, government never-never, and laundered money?

It's the same basic problem as Woodford though essentially illiquid investments held in a structure that demands liquidity.
As for continuing to generate income the investors have a kind of prisoners dilemma .
If they were all to stay in the fund could ride out the problems however if some leave they sell the liquidity and most marketable properties first so the imperative is for others to leave otherwise you're stranded with the worst assets . It was ever thus with property, the only reason that I can conceive why people buy them is the commissions generated by those who advise them, otherwise the close ended companies are a far more rational way of owning property.

Not really.

With a close ended fund, you're not really so much better-off. The situation being one of outflows exceeding liquidity, an IT/REIT would move to a very high discount, as opposed to an open-ended fund's binary yes/no. Either way, you're stuffed if you want to sell. Corollary (and the application of this is where Woodford "Equity Income" differed radically): always keep adequate "getting by" funds somewhere with more liquidity.

Yes there is some difference. A binary on/off may encourage a run on the fund while it's open, whereas a discount will increasingly discourage sales as it widens and thus self-regulate (like BoE interest rates should with debt if they were linked to a sensible measure like M4 as opposed to a meaningless price index). Either mechanism will disadvantage the naive investor, but big discounts may be popular here because of the opportunities they sometimes present for vulture profits.

[SalvorHardin]

Remind me. Hasn't property in general been heading south? At least, outside the residential sector driven ever higher by taxpayer funds, government never-never, and laundered money?

Retail is suffering, especially second-tier shopping centres. This gets lots of reporting in the non-financial media due to the decline of the high street. What doesn't get anything like the same publicity is that warehouses are doing brilliantly (SEGRO's share price is up 45% so far in 2019).

From August 2019 "Warehouse demand hits three year high as supply lags behind"
https://www.insider.co.uk/news/warehous ... r-18863823

I suspect that a major reason why people like to own property in open-ended funds is the belief that you always get market price when you sell. Combine this with commissions and their modern equivalent "platform fees" and there's a big incentive to push investors into open-ended funds.

My preferred area, Central London commercial, is doing okay but year-to date the share prices of the specialists have done much better (Derwent London +31%, Great Portland Estates +28% and Shaftesbury +13%). I'd argue that this is a combination of the reduction in Brexit no-deal fears, Labour being unlikely to get a majority in the election and that Central London is still a pretty good place to own property especially when the Crossrail project is finally completed.

Residential property movements as always are heavily influenced by what part of the country you're looking at, with the media paying much more attention to price movements in London and the South-East. In London prices have fallen in 20 of 33 boroughs in 2019. But here in Somerset prices have risen by between 0.5% and 4.4%. I blame "Escape to the Country"

https://www.homesandproperty.co.uk/prop ... 34791.html

https://www.somersetlive.co.uk/news/som ... ng-3460726

[CrackAddick]

Probably, but property is a long term investment. The same fund was suspended for four months in 2016 before rising to even higher levels. Any reason to suspect the asset class won't perform in similar fashion to previous crises and cycles going forward?

Short answer was no.

But my thinking on this had simply been that property fund Investors seeing this fund being suspended, may decide to head for the exit on other property funds, before those funds bring the shutters down too. Effectively creating a run on Property Funds

That sort of issue usually makes the more mainstream media and can create negative sentiment to the property sector as a whole, impacting REITS/ITs, even though they don't have the same fundamental flaw as a unit trust. Which in turn creates an opportunity for individuals such as yourself that appreciates the longer term outlook or the big boys who are able to buy up assets on the cheap, due to other funds being forced sellers.

[Backache]

Not really.

With a close ended fund, you're not really so much better-off. The situation being one of outflows exceeding liquidity, an IT/REIT would move to a very high discount, as opposed to an open-ended fund's binary yes/no. Either way, you're stuffed if you want to sell. Corollary (and the application of this is where Woodford "Equity Income" differed radically): always keep adequate "getting by" funds somewhere with more liquidity.

Yes there is some difference. A binary on/off may encourage a run on the fund while it's open, whereas a discount will increasingly discourage sales as it widens and thus self-regulate (like BoE interest rates should with debt if they were linked to a sensible measure like M4 as opposed to a meaningless price index). Either mechanism will disadvantage the naive investor, but big discounts may be popular here because of the opportunities they sometimes present for vulture profits.

I disagree, with one you take a hit if you sella lthough if you've bought at a discount the hit may not be too large. With the other, you cannot sell you're stuffed.
However that is not the only point, if you stay in you will probably do worse with the open ended fund as well. The fund has to carry cash to allow for redemptions which are funds that you have put in that are not getting a return. Further if other people are selling the manager may have to sell the better properties as these are the ones that are easier to sell, if the fund is gated the manager will almost certainly have to sell in order to meet redemptions when it reopens so you are a forced seller effectively at a low point in the market without even having access to your cash.

[UncleEbenezer]

Out of curiosity, I've just looked at a five-year comparison using H-L's interactive charting. I started with the M&G property fund, then added the open-ended UK property sector index, the FTSE all-share property index, and the FTSE 350 property and REIT indexes.

The sector performance looks uninspiring, and the M&G fund has underperformed it. But the OEIC index has outperformed the FTSE indexes for closed funds, with the exception of REITS where they're neck-and-neck. Here are total return figures over five years:

M&G Fund (to suspension)     5.51%
UT UK Direct Property       23.92%
FTSE All-share property     14.03%
FTSE 350 property           15.75%
FTSE 350 REIT               24.46%

Given the size of the troubled M&G fund, it looks likely that the UT index excluding it might beat all of them. But more than that, the graph shows a far, far smoother ride for it than for anything else. Looks (comparatively) fine for the investor not concerned about liquidity, and the smoother ride of the UTs might be a whole lot better for many investors' quality of sleep!

[Alaric]

But more than that, the graph shows a far, far smoother ride for it than for anything else. Looks (comparatively) fine for the investor not concerned about liquidity, and the smoother ride of the UTs might be a whole lot better for many investors' quality of sleep!

The smooth ride is a little misleading. The way these funds are run is that the properties themselves are not valued that frequently. Perhaps quarterly, but certainly not daily. In the absence of valuation data, there's little, other than the accrual of rents to move the stated value.

[mc2fool]

Out of curiosity, I've just looked at a five-year comparison using H-L's interactive charting. I started with the M&G property fund, then added the open-ended UK property sector index, the FTSE all-share property index, and the FTSE 350 property and REIT indexes.

The sector performance looks uninspiring, and the M&G fund has underperformed it. But the OEIC index has outperformed the FTSE indexes for closed funds, with the exception of REITS where they're neck-and-neck. Here are total return figures over five years:

M&G Fund (to suspension)     5.51%
UT UK Direct Property       23.92%
FTSE All-share property     14.03%
FTSE 350 property           15.75%
FTSE 350 REIT               24.46%

Given the size of the troubled M&G fund, it looks likely that the UT index excluding it might beat all of them. But more than that, the graph shows a far, far smoother ride for it than for anything else. Looks (comparatively) fine for the investor not concerned about liquidity, and the smoother ride of the UTs might be a whole lot better for many investors' quality of sleep!

Strange, I get some different numbers to you from HL's interactive charting, and I also can't find FTSE All-share property and FTSE 350 property sectors in their list, just the Real Estate Investment & Services ones, which I think are a bit different.

Cumulative performance
Investment                                      3 months    6 months    1 year    3 years    5 years
M&G Property Portfolio A Acc GBP                    -5.08%    -6.88%    -8.25%     1.62%     2.48%
UT UK Direct Property                               -0.28%    -0.25%    -0.02%    12.4%     23.92%
FTSE 350 Real Estate Investment Trusts              16.89%    17.92%    27.03%    36.05%    26.93%
FTSE 350 Real Estate Investment & Services          16.84%    13.94%    18.28%    26.81%    16.88%
FTSE All Share Real Estate Investment & Services    15.99%    13.79%    15.92%    22.51%    15.47%

In any case, the HL system doesn't appear to include any IT sectors. The AIC Property - UK Commercial sector has a 5 year share price TR of 31.5% and NAV TR of 44.4% and the Morningstar IT Property - UK Commercial sector 53.70% / 69.81%. The AIC figures are a size weighted average, not sure about the Morningstar ones. https://www.theaic.co.uk/companydata/0P ... erformance

[Backache]

Out of curiosity, I've just looked at a five-year comparison using H-L's interactive charting. I started with the M&G property fund, then added the open-ended UK property sector index, the FTSE all-share property index, and the FTSE 350 property and REIT indexes.

The sector performance looks uninspiring, and the M&G fund has underperformed it. But the OEIC index has outperformed the FTSE indexes for closed funds, with the exception of REITS where they're neck-and-neck. Here are total return figures over five years:

M&G Fund (to suspension)     5.51%
UT UK Direct Property       23.92%
FTSE All-share property     14.03%
FTSE 350 property           15.75%
FTSE 350 REIT               24.46%

Given the size of the troubled M&G fund, it looks likely that the UT index excluding it might beat all of them. But more than that, the graph shows a far, far smoother ride for it than for anything else. Looks (comparatively) fine for the investor not concerned about liquidity, and the smoother ride of the UTs might be a whole lot better for many investors' quality of sleep!

Todays Sunday Times has an article showing inferior returns from Unit trusts versus IT's in property since Brexit.
https://www.thetimes.co.uk/edition/mone ... isis-bites
I suspect starting and finishing dates are crucial when comparing but I can recall several occasions where property Unit trusts have run into major problems and I know where my money would reside.

[gbjbaanb]

Out of curiosity, I've just looked at a five-year comparison using H-L's interactive charting.

Are the results you get back total return, or just share price changes, because a lot of REITs will be providing a lot of dividends that will see the share price remain flat (I'm surprised they did as well as they have).

Hence the sector looking uninspiring.

[UncleEbenezer]

Out of curiosity, I've just looked at a five-year comparison using H-L's interactive charting.

Are the results you get back total return, or just share price changes, because a lot of REITs will be providing a lot of dividends that will see the share price remain flat (I'm surprised they did as well as they have).

Hence the sector looking uninspiring.

All the figures I posted were total return. The figures someone else posted were from one day later, which may explain the difference, as there were some rather big movements in the IT indexes exactly five years earlier.

Yes, if the 20% rise were in addition to a dividend in the 5% ballpark, it would look a whole lot better. Indeed, pretty-good for a sector seen as lower-risk. I think infrastructure has given us something like that.

[mc2fool]

The figures someone else posted were from one day later, which may explain the difference, as there were some rather big movements in the IT indexes exactly five years earlier.

The figures I posted were just an hour later than yours, 11:53 pm to 12:58 am, and I don't think the markets were open in the interim.

And, in fact, one of them, UT UK Direct Property figure, was the same. So it's still not clear why there's differences between the others, nor where you got the FTSE All-share property and FTSE 350 property sector figures from, as I couldn't find those in HL's list, nor, indeed, anywhere else.

[UncleEbenezer]

The figures someone else posted were from one day later, which may explain the difference, as there were some rather big movements in the IT indexes exactly five years earlier.

The figures I posted were just an hour later than yours, 11:53 pm to 12:58 am, and I don't think the markets were open in the interim.

My conjecture was that the H-L graphs work on the granularity of a day.

And, in fact, one of them, UT UK Direct Property figure, was the same.

One of my original observations was the UT index being a smooth ride!

So it's still not clear why there's differences between the others, nor where you got the FTSE All-share property and FTSE 350 property sector figures from, as I couldn't find those in HL's list, nor, indeed, anywhere else.

I paraphrased. My laptop screen is too small to have had the exact names in front of me as I typed. You obviously understood, as you found them.

[gbjbaanb]

Are the results you get back total return, or just share price changes, because a lot of REITs will be providing a lot of dividends that will see the share price remain flat (I'm surprised they did as well as they have).

Hence the sector looking uninspiring.

All the figures I posted were total return. The figures someone else posted were from one day later, which may explain the difference, as there were some rather big movements in the IT indexes exactly five years earlier.

Yes, if the 20% rise were in addition to a dividend in the 5% ballpark, it would look a whole lot better. Indeed, pretty-good for a sector seen as lower-risk. I think infrastructure has given us something like that.

Gosh. Well, the AIC shows 5 year total return for 3i infrastructure as 113.7% and Custodian REIT (picked at random) as 39%. TR Property (which you could say is a REIT of REITS) has returned 90% over 5 years. I can't reconcile that v the FTSE350 property index unless these well-performing REITs are all in AIM.