Property Fund Re-value Assets Following Brexit Vote

NEWS YOU CAN USE: Brexit impacts property funds, Alliance Trust and RIT Capital merger deal is off, Newton Asian Income confirms manager and Artemis lose income star

Emma Simon 30 June, 2016 | 11:32AM
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In the investment industry, events this month have been overshadowed by the monumental decision made on June 23 for the UK to leave the European Union.

Events since have been dominated by both financial and political uncertainty -  as markets, fund managers and ordinary investors try to understand what these vote means in practical terms, and what the short- and long-term consequences might be.

In the immediate aftermath the UK has lost its triple-A rating, sterling has been hammered in value and stock markets remain volatile – although after an initial blip the FTSE 100 has avoided a more comprehensive sell off.

More badly hit have been the more domestically-focused FTSE 250 index and European markets.

Below we look at some of the direct effects of the Brexit vote on the investment industry, plus a round-up of other fund news that happened earlier this month.

Fund Industry Moves to Calm Investors’ Fears

Martin Gilbert, the chief executive of Aberdeen Asset Management has said that there may be buying opportunities for fund managers and investors alike following the volatility created by the Brexit vote.

He said the market volatility seen in the days following the Referendum should be viewed by long-term contrarian investors as a chance to buy favoured companies at lower valuations.

Although the FTSE100 has since recovered much of the ground it lost following the announcement of the Brexit vote, many commentators think it is likely that there will be a prolonged period of volatility until a clearer picture emerges of what relationship the UK will have with the rest of Europe.

Gilbert added: “Any further falls in markets should be considered as a buying opportunity rather than a signal to follow the herd for the exit.”

Other City figures also moved to reassure investors and markets. Lord Mervyn King, former Governor of the Bank of England, said that investors should not panic at the volatility or market falls seen since the Referendum.

"I don't think people should be particularly worried, markets move up, markets move down. We don't yet know where they will find their level and the whole aspect of volatility is that there is a trial and error process going on before markets discover what the right level of stock markets and exchange rates actually are.”

He also predicted the long-term effect of a Brexit on GDP would turn out to be "a bit of a fuss about nothing".

Meanwhile several leading fund shops and stockbrokers reported higher levels of trading in the aftermath of the Brexit vote. But in most cases they said that among retail investors buyers looking for bargains outweighed those selling stocks or funds.

Blow for Commercial Property Investors

Commercial property investors look to be among those first hit by the Brexit vote.

Henderson adjusted the “fair pricing” on its £4 billion commercial property fund following the Referendum, causing values to dip by 4%.

This was following by similar moves from Aberdeen Asset Management, which reduced the market value of its £3.4 billion UK Property by 3.75%.

Aberdeen said it had “yet to experience difficulties” but there is a fear that if properties within the portfolio had to be sold now, they would not get previous market valuations - as many company investment plans were on hold following the Brexit vote. There are also concerns that this could lead to less investment in UK commercial and residential property from overseas buyers, particularly in prime location.

Meanwhile, Henderson said it had asked the fund’s independent valuers to start preparing valuations on the property in its portfolio on a weekly, rather than monthly basis.

Henderson said: “There is an expectation currently among participants and observers that valuations in the UK commercial property market will face downward pressure following the result.

“In the interests of treating investors fairly and until the independent valuation report can reflect evidence of market activity post the referendum result, Henderson has included a fair value adjustment in today's fund prices.”

Ahead of the Referendum several commercial property funds, including Aberdeen, Henderson, M&G and Standard Life, changed their pricing in a bid to stem outflows. Commercial property has performed well over the last couple of years and there were concerns that many investors would look to take profits ahead of the Brexit vote - causing liquidity problems for these funds.

Laith Khalaf, senior analyst at Hargreaves Lansdown, said other property funds are likely to follow suit. “The problem faced by property funds is one of price discovery. Transactions in commercial property are infrequent, and given the uncertainty created by the Brexit vote, determining the fair price for a property is difficult in the absence of transactional data.

“Giving too high a price to investors selling today would disadvantage those remaining in the fund, hence the price adjustment,” he said.

Investment Trust Merger Scrapped

So it is off. The proposed £5 billion deal to merge Rothschild-backed RIT Capital Partners (RCP) with the beleaguered Alliance Trust (ATST), seen as one of the most high profile investment trust mergers in recent years, has fizzled out before formal talks got underway.

RIT Capital Partners, the driving force behind this proposed tie-up, said it won’t now be making a formal bid for Alliance Trust having concluded it would “not be in the best interests of its shareholders”.

Alliance Trust shares dipped on this news. The trust has faced a year of turmoil sparked by activists disappointed at poor performance. This led to the departure of its former chief executive Katherine Garrett-Cox last year. However, the current board said its proposed turnaround plan “has already started to make good progress”.

Kan Secures Top Job at Newton Asian Income

It has taken a year, but Newton Asian Income has finally appointed Zoe Kan as lead manager on its successful Newton Asian Income fund. The fund, which has seen strong outperformance in recent years. However last year Jason Pidcock, who founded the fund in 2005 and managed its since, left to take up a similar role at Jupiter. At the time Kan was co-manager on the fund.

Although the fund has a five-star rating from Morningstar, reflecting its strong outperformance, its medal rating is currently Neutral. Simon Dorricott, an analyst at Morningstar said, prior to this announcement: “Although we continue to see some positives for this fund, the amount of changes at the manager and team levels precludes a higher Morningstar Analyst Rating.”

Artemis Loses Star Income Manager

Star fund managers, Adrian Gosden, is leaving Artemis after 13 years. He has been the co-manager on its £6.8 billion Income fund, which has a three-star rating from Morningstar. The fund will continue to be run by Adrian Frost, also co-manager, who has been at the helm since 2002.

Morningstar analysts said: “We continue to have a positive view on this core UK equity-income mandate. This was one of our highest-conviction funds for many years, thanks to a highly experienced management team consistently applying a sensible tried-and-tested approach.”

However recent results at the fund have been disappointing, Morningstar said. This, now combined with the loss of one of the key people from its management teams, has resulted in Morningstar lowering its analyst rating from Gold to Bronze.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Alliance Trust Ord955.08 GBP-0.92Rating
Artemis Income R Inc2.21 GBP-0.50Rating
BNY Mellon Asian Income GBP Inc2.18 GBP-0.22Rating
RIT Capital Partners Ord2,480.25 GBP-0.99Rating

About Author

Emma Simon

Emma Simon  is a financial journalist, specialising in investment and consumer issues, writing for Morningstar.co.uk