BMO Gam has switched its UK Property fund to offer pricing in a move that could signal a “big shift” in sentiment from the almost £2bn net outflows faced by the sector in 2019.
The asset manager told investors on Tuesday it had switched from bid to offer pricing as it looked to acquire a £15m property and shifts into acquisition mode. It’s pricing has increased approximately 4.6% as a result.
The fund had shifted to bid pricing in August 2019. “This represented the asset manager’s defensive and cautious position relating to the political uncertainty in the UK,” BMO Gam said in a letter seen by Portfolio Adviser.
The announcement comes less than three months after the M&G Property Portfolio suspended ahead of the UK general election due to “unusually high and sustained” outflows. Investors had pulled £746.9m in the 12 months leading up to its suspension, Morningstar estimates show.
In 2019, investors pulled £1.8bn from the Investment Association UK Direct Property sector. There was not one month of inflows for the sector with the highest monthly net redemptions in December when investors pulled £263m.
Unlucky timing for suspended M&G fund
Fairview Investing consultant Ben Yearsley said the switch suggested the M&G Property Portfolio might have been able to avoid suspension altogether if it had been able to make it past the 2019 election.
“Two and half months later and you’ve got a fund going to offer pricing. I think timing wise, M&G were unlucky.”
The £2.4bn fund suspended on 2 December. It had the lowest cash levels in the IA UK Direct Property sector at just 4.8%, an allocation it said was deliberate because “customers pay us to invest their money, not to keep it idle”.
By comparison, BMO UK Property currently has cash levels of 25%. BMO GAM offers a cash rebate on fees when cash levels are over 15%.
Yearsley attributed BMO GAM’s shift to offer pricing to the “Boris bounce”. “That’s a big shift in sentiment from the last 12 to 18 months, if not longer.”
Guy Glover switches into acquisition mode
BMO GAM confirmed the fund had agreed terms for a £15m purchase representing around 3% of the fund.
Its letter to investors stated: “With the fund continuing to attract inflows, cash levels remain at an elevated level and the fund manager will continue to prudently look to acquire additional assets to complement the portfolio.”
The £514.71m fund faced net outflows of £16.4m in 2019 although it enjoyed inflows in some months, including £22.6m in July, its largest monthly net sales for the year, and £7.7m in December, when the UK general election was held, according to Morningstar estimates.
Fund manager Guy Glover had been running a “defensive and cautious” portfolio due to political uncertainty in 2019, the letter to investors said. It had shifted to mid pricing in January after the UK election in which the Conservatives won a convincing majority.
Yearsley said his outlook for the UK direct property sector was that it would be a “boring” but reliable asset class.
“Blended property will deliver three to 4% per annum for the next couple of years, which is fine actually if you’re getting lots of volatility in equity markets. It’s not doing a bad job on that basis.”