Fund manager M&G has suspended trading in its £2.5bn property fund because Brexit concerns and tough high street trading have made it “difficult” to sell shops and offices.
The M&G Property Portfolio barred investors from withdrawing cash from the fund yesterday. It said: “Brexit-related political uncertainty and ongoing structural shifts in the UK retail sector have made it difficult for us to sell commercial property”.
The M&G fund, which is marketed to retail investors, saw withdrawals soar this year, hitting £901m by the end of October, compared with £299m for all of 2018, according to data firm Morningstar.
Investors pulled out £2.1bn across real estate funds in the UK in the first ten months of the year. Another fund to suffer heavily was the Aberdeen UK Property fund, which saw investors withdraw £542m.
The move follows the collapse of the flagship £10bn fund of former star stockpicker Neil Woodford, which closed in October.
The suspension stokes fears of 2016, when a raft of commercial property funds were suspended due to market turbulence following the Brexit vote.
London-listed M&G fund said it would not accept investors withdrawals after midday yesterday (Wednesday), which it added was a temporary measure.
The fund holds about 40 per cent of its portfolio in retail property, according to its latest data sheet. The valuations of those retail holdings were cut by 7.7 per cent last month.
The fund invests in 91 retail, industrial and office buildings in the UK. It added that the suspension will be monitored daily, formally reviewed every 28 days.
Property funds marketed to retail investors allow daily trading, but it can take months to sell properties, leaving a risk of running out of cash.
M&G said: “The suspension will allow the fund managers time to raise cash levels to pay redemptions, whilst ensuring that asset sales are achieved at market prices and investors in the Fund are safeguarded.”
Ryan Hughes, head of active portfolios at investment platform AJ Bell, said: “M&G’s decision to suspend the fund comes at a time when there is heightened concern about liquidity in funds, with investors understandably jittery after Woodford’s fund closure.
He added: “Property is an inherently illiquid asset, potentially taking months to sell, and so when faced with large outflows the fund manager has to juggle selling off assets and maintaining cash levels.”
A spokesperson for City regulator, the Financial Conduct Authority, said it was working with the firm to “ensure that timely actions are undertaken in the best interests of all the fund’s investors”.
The M&G fund was among those which were suspended trading after Britain’s European Union referendum in 2016, along with products from Aviva, Standard Life, Columbia Threadneedle, Henderson Global Investors, Aberdeen and Canada Life.
Woodford was sacked from his own Woodford Equity Income Fund, which was first suspended in June, after investors pulled cash out of the fund as the value of the portfolio tumbled. It struggled to pay investors because it held significant holdings of unlisted shares, which are difficult to sell quickly.
The FCA will impose new rules from 2020 that will force property funds to halt trading if there is uncertainty about the value of 20 per cent or more of their assets. However, the regulator has stopped short of banning daily traded funds from investing in illiquid assets such as property.
But AJ Bell’s Hughes said: “Bearing in mind the fundamental mismatch between the underlying assets and liquidity offered to investors, that looks to be a mistake, particularly given the fact that this type of fund has now suspended twice in less than four years.”
M&G said it will waive 30 per cent of its annual charge until the fund resumes dealing.