he property market was hit hard after the EU referendum, leading to many large retail funds closing their portfolios, effectively locking investors in. The closures came amid large-scale redemptions\u00a0from investors, who were worried about property values plummeting as a result of the vote to Brexit.<\/p>\n
The Kames Property Income fund avoided the suspensions that other funds had to impose. Instead, it went into the Brexit period with 33pc of the fund in cash\u00a0to meet redemption requests. It also imposed a \u201cfair value adjustment\u201d, an effective exit fee for investors who wanted to redeem their money, of 10pc at its peak. It removed this adjustment\u00a0at the end of September.<\/p>\n
An investor who had remained in the fund through the Brexit period\u00a0to the present would have lost 1.8pc, according to data from\u00a0FE Trustnet, the investment analyst. However, if they had redeemed at the end of September, just before the adjustment charge ended, they would have lost 8.8pc.<\/p>\n
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The fund now has \u00a3433m in assets. Previously\u00a0its total value had\u00a0fallen from\u00a0\u00a3515m at the end of May to\u00a0\u00a3369m at the end of July, after the EU vote.\u00a0It was launched in 2014.<\/p>\n
David Wise runs the fund alongside his co-manager, Alex Walker. However, Mr Walker is leaving the company in December, to be replaced by Richard Peacock, who joins from Aviva Investors, the fund house.<\/p>\n
Mr Wise tells\u00a0Telegraph Money<\/em> about his views on the property market, how holding high levels of cash will affect the fund\u2019s performance and the hardest month of his working life.<\/p>\nHow did you manage the fund through Brexit?<\/h3>\n
W<\/span>e managed to escape the worst of it and\u00a0we were one of the few that stayed open through the post-Brexit period.<\/p>\nBrexit was a challenge\u00a0and July was one of the most challenging months of my working life.<\/p>\n
While in general we are very “bottom-up” and focused on the individual assets, we\u2019re not afraid to make some big calls when we need to. \u00a0One of those was on June 23:\u00a0we were sitting on 33pc in cash and other liquid investments, which was a contrast to the very low levels that one or two major competitors were holding.<\/p>\n
However, those cash levels went from 33pc to 15pc at our lowest point in the Brexit aftermath.<\/p>\n
We have found that about 50pc of the money that went out of the door in that panic period has actually come back in from those same investors.<\/p>\n
What\u2019s the outlook for the UK property market?<\/h3>\n
B<\/span>rexit does cast some element of a shadow. If you look across the market as a whole valuations are down by around 5pc, but what that masks is some variation.<\/p>\nIf you look at London, perhaps the area most exposed to Brexit, valuation falls there have been greater, although there has been some underpinning from the fall in sterling.<\/p>\n
London tends to lead the cycle in real estate, and London is getting pretty late in the cycle, so one can\u2019t see rents rising much further. London is a very expensive place, but it is likely to get cheaper, although I don\u2019t see it falling off a cliff.<\/p>\n
In general we are buying in locations that are fundamentally cheaper and can give us higher income returns, typically in big northern cities such as Manchester, Sheffield, Leeds and Newcastle.<\/p>\n
What Brexit would mean for… house prices<\/h1>\n\n- The Chancellor, the governor of the Bank of England, and ratings agencies Fitch and Moody\u2019s, have all warned that house prices could fall substantially, by anywhere from 10- 25pc by 2018. The Treasury said that the average house in London will be \u00a362,000 cheaper in two years after a vote for Brexit.<\/li>\n
- This would be because the economy would take a hit and people may find it harder to get a mortgage, therefore making demand levels lower. Campaigners for Vote Leave have said that this could conversely help first-time buyers get on the property ladder if prices fall.<\/li>\n
- The number of houses being built could also be affected as an already acute skills shortage would be increased if immigration was curtailed, affecting manual labourers, many of whom come from the EU.<\/li>\n
- London would be hit the hardest by a vote to leave the EU, because it has the highest proportion of foreign nationals in the country, many of whom may not be able to live there due to tighter immigration rules. This could lead to fewer people buying or living in the city, and would largely affect the top end of the market.<\/li>\n
- But many analysts and house builders say that while supply levels are so far behind demand, prices will continue to rise, whether we vote for a Brexit or not.<\/li>\n<\/ul>\n
How does your investment approach differ from your peers?<\/h3>\n
W<\/span>e invest in properties worth around \u00a35m to \u00a320m, so smaller assets than our peers. The returns and liquidity at the lower end of the market are more attractive.<\/p>\nIt gives us a much more diverse range of investors to sell to, meaning there tends to be better liquidity.<\/p>\n
It means we will never be able to take the fund assets beyond \u00a31bn, and means we can\u2019t become one of those big funds, but we don\u2019t want to.<\/p>\n
Do you worry about the effect that high cash levels will have on the performance of the fund?<\/h3>\n
Our cash level is currently 30pc. If I were\u00a0holding hefty cash levels for five years it would be very damaging to returns, but I don\u2019t anticipate that we will have 30pc cash well into next year.<\/p>\n
I am happy with that cash level. It provides some buffer if there are any more Article 50 bumps in the road, but it also gives us firepower to take advantage of opportunities. We tend to do a lot of buying around Christmas, when a lot of other people in the property market are putting their feet up.<\/p>\n
Do you have your own money in the fund?<\/h3>\n
I do, yes. I don\u2019t want to say exactly how much, but it is a reasonably significant sum.<\/p>\n
What would you have done\u00a0if you hadn\u2019t become\u00a0a fund manager?<\/h3>\n
I did a degree in zoology and before I got into real estate I had a position to research the malaria parasite.<\/p>\n
Independent views:<\/h3>\n
The Kames Property Income fund invests in physical commercial property with the aim of providing investors with a reliable monthly income stream.<\/p>\n
It targets a yield 0.75pc higher than similar funds, in the region of 5.5-6pc a year. However, the yield is likely to vary as property prices rise and fall.<\/p>\n
Having launched in March 2014, it is too soon to say whether the fund can meet its objective over the long term, although it has made a positive start, currently yielding 5.6pc .<\/p>\n
The fund is a little different to other commercial property funds. The focus on income means that the managers will invest in smaller properties, of between \u00a33m-\u00a320m.<\/p>\n
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T<\/span>his includes small leisure parks and office buildings, which tend to have a higher yield than large flagship buildings that often trade at a premium.<\/p>\nThe fund will also try to take advantage of the yield differential between so-called \u201cprime\u201d and \u201csecondary\u201d property.\u00a0 Prime property tends to be big, located in major metropolises and in excellent condition. Secondary property may need a little refreshing or perhaps be in a smaller town or city.<\/p>\n
It is still early days but we like that Kames has launched a property fund to cater for income-hungry investors and it\u2019s an interesting one to watch.<\/p>\n<\/div>\n<\/div>\n<\/div>\n
<\/div>\n
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H<\/span>owever, investors should be aware that commercial property is an illiquid asset class and that, at times of market stress, property funds may apply significant downward adjustments to their prices or shut their doors.<\/p>\nWhile this fund was one of few property funds not to suspend trading in the aftermath of the Brexit vote, it did reduce the property prices in the fund.<\/p>\n
This is a risk investors should consider carefully before buying any\u00a0commercial property fund.<\/p>\n<\/div>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"
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