23 Mar Why has my property fund investment been suspended and how does this impact on me?
What has happened?
Due to the impact of coronavirus, the managers of property funds can’t be sure how the value of the properties owned by them have changed and until they have more certainty, they are required to suspend the trading in units.
A period of suspension will give the valuers time to better understand the impact coronavirus is having on direct property market valuations so anyone selling or buying units get a fair value for them.
Other funds that invest in daily traded assets such as shares have a more immediate valuation system from the daily market feedback. Property transactions are not conducted on an open market and take much longer so the necessary specialist input on valuation takes a bit longer to gather and as such the managers are given a period of grace on occasions when valuations shift dramatically.
The last time there was a wave of property fund suspensions was June 2016 following the BREXIT vote and most were trading again within a few months.
How are you affected?
As part of a diversified investment portfolio many of our clients will be invested in property funds, especially those who invest through our Model Portfolio investment strategies. The two funds we have supported the most are the Aberdeen UK Property Feeder Unit Trust and the Threadneedle UK Property Authorised Trust Feeder Fund, but we have recommended others as well.
At the moment, suspended property funds will continue to show an indicative price, and the value of the units will be included in the overall value of your investments, however, it is not possible to buy or sell units while the funds remain suspended. This means any portfolio rebalances, fund switches, top ups or withdrawals from these property funds will not be possible until the suspensions are lifted.
What if I’m taking income payments from my investments?
If you have a withdrawal plan in place which involves selling shares in any of the suspended funds, this will no longer be possible until the suspensions are lifted. If there is not enough cash in your account to cover your income payment, the provider will sell some of your investments in a different fund to make up any shortfall. Typically, this will mean selling some of the largest fund holding (by value).
What will happen to Regular Savings Plans?
The provider will collect direct debit payments as usual, and any money that would usually have been invested in any of the suspended property funds will remain in your account as cash. This applies to ISAs, Investment Accounts and pensions. Any investments into other funds will continue as usual.
Do I need to do anything?
The short answer is no. Affected clients will be contacted directly by the providers who will confirm the specific fund suspensions with you. Any contributions or withdrawals you make will continue as discussed above and, for those clients due a portfolio update and/or rebalance during the suspensions, we will address and discuss the investment options with you at your review.
How long will the suspensions last?
The fund suspensions will remain in place until we are notified that the suspension instruction has been lifted. At this time, it is difficult to say how long it will be before each fund’s property holdings can be valued with more certainty.
If you have any questions regarding the above or any other aspect of you financial planning, please do not hesitate to contact the office on 01227 931 531.