UK market overview
The Jones Lang LaSalle Balanced Fund Index fell by a further 0.88% in November, a 12-month return of -2.93%, which falls to -5.96% including secondary market pricing, writes Ashley Marks.
This relatively sharp fall can be attributed to redemption queues becoming a serious issue for some open-ended funds, with a small group of managers postponing redemptions for more than 12 months. This has caused secondary market pricing of these funds to fall below the bid price.
Most of the bellwether balanced funds have been transacting at around net asset value since June 2010, but a handful have active vendors or deals occurring at far below bid price – 10% discounts or greater. Market sources note that these discounts are more a reflection of fund-level issues than significant concerns about asset quality.
Although the market is rife with rumours of management takeovers and orderly fund wind downs, little has been confirmed at this point. Most other funds, however, are still traded regularly within 2% of NAV.
Shopping centre funds managed by Standard Life, Lend Lease and Henderson continue to transact at 5-8% discounts to NAV. Minor pricing adjustments in two of these funds have resulted in an average negative price movement of -0.5% across the sector. The Mall remains closer to a 30% discount.
Retail warehouse fund pricing dipped in November, with only a handful of deals taking place. Demand for Hercules and Henderson Retail Warehouse Fund remains buoyant at around 10-12% discounts to NAV, with Standard Life’s ungeared fund closer to around a 6% discount to NAV. Discounts largely reflect achievable pricing on the direct market.
Like balanced funds, a handful of industrial vehicles have pushed the sector average out disproportionately this month with a fall of over 2%. Pricing for more prime and lower- geared vehicles remains stable, at around 2% and 6% for IPIF and AIPUT respectively. Discounts for Ashtenne, The Industrial Trust and Falcon moved to far greater levels.
A lack of vendors in Henderson’s Central London Office Fund and WELPUT has kept discounts to a minimum, at around 3-5%. Following some improvements in the fund’s income profile, pricing for UBS’s CLOVA has moved to around a 5% discount, an increase of more than 2% this month alone.
There were a number of transactions in the Unite UK Student Accommodation Fund during Q4 at just above NAV, a modest fall from the premiums of around 1% in the past few months. The price drop was caused by concerns about the student accommodation market, with some buyers acquiring units at small discounts to NAV.
Demand for L&G’s Leisure fund is at a small premium to NAV while big potential changes in X Leisure’s ownership structure (see news, p7) has limited activity for all but the largest investors. Pricing for Quercus has fallen considerably, because the fund’s long-term future remains unclear.