The M&G Property Portfolio has been battered by redemptions after re-opening its doors in May for the first time in 17 months.
The UK property fund, which was frozen on 4 December 2019 due to liquidity reasons, had ￡2.1bn in assets when it began trading again on 10 May.
But by the end of the month, this had dwindled to ￡1.3bn after investors yanked ￡806m from the fund, according to data from Morningstar.
A spokesperson for M&G said the firm could not comment on the flows data but said initial outflows had been fairly consistent with expectations.
Ben Yearsley, investment consultant at Fairview Investing, described May’s outflows as “pretty horrific but not unexpected”. “Unfortunately for M&G, the outflow will continue albeit at a slower pace,” he said.
See also: M&G to unfreeze ￡2bn Property Portfolio after nearly year and a half suspension
Manager Justin Upton has made a number of changes to reduce risk and strengthen the fund’s income stream.
During its year and a half suspension ￡702.7m worth of assets were sold, a large chunk of which were in retailers, boosting cash levels to 33.2%. Retail now accounts for 28.1% of the fund’s exposure instead of 38.4% at suspension.
Now offices feature much more prominently, with the revamped top 10 including investments in 1-8 Bedfont Lakes in Heathrow, Enterprises House in Uxbridge, Aurora 120 Bothwell Street in Glasgow and Portland & Riding Estate in London.
It is also overweight industrials with Heritage House, Unit 2 and 7A/B/C Millington Road and Junction Six Industrial Estate among some of its biggest holdings.
Other changes included a switch to dual pricing on a full spread basis from 25 June to “provide greater dealing clarity, reduce the potential for large price fluctuations and provide stronger alignment with the fund’s long term horizon”.
Moving forward M&G plans on targeting a cash weighting around 20% to “enhance liquidity management”.
Despite the changes Yearsley still thinks the beleaguered UK property fund faces a tough road ahead.?“It doesn’t matter what M&G does – the structural problems for physical property funds still exist,” he said.
The UK Direct Property sector saw outflows of ￡21.9m last month, according to Investment Association data. Since the beginning of the year, ￡365.3m has exited the sector.
Property funds endured a torrid time in 2020 with most of them suspending after the Covid crisis made it impossible to value their underlying holdings.
While most have since re-opened, Aviva Investors decided it was best to liquidate its property fund after an almost 15-month suspension.
The FCA is considering the use of long-term asset funds as a solution to property funds’ liquidity mismatch but its conclusions will not be published until Q3 this year.
By Harriet Habergham, 4 Jun 21
Tag: bedfont lakes