UK market overview
The Jones Lang LaSalle Balanced Fund Index increased by 0.15% in June, compared with a 0.51% rise in May, writes Julian Schiller. The index has now increased by only 1.98% since the start of the year and 3.51% over the past 12 months. When taking into account secondary market pricing, the 12-month return increases to 4.16%.
A number of smaller deals in balanced funds went through in June. Transactions of below £5m have occurred in Threadneedle PUT, Royal London and Aviva Pensions, all at premiums to the latest net asset value. Demand remains buoyant for these commonly sought funds and others, such as those managed by BlackRock, Rockspring and Lothbury.
Pricing remains steady, with trades typically occurring at premiums of 0.5-4%, depending on the fund. A handful of funds are available at discounts to NAV, but these are typically the less sought-after vehicles. Investors very familiar with the secondary market are selecting it as their preferred method of entry into balanced vehicles, instead of subscribing for new equity, as secondary pricing is generally lower than offer pricing. However, the low availability of product remains their largest obstacle.
Shopping centre funds
After a highly active past three months, the shopping centre secondary market cooled in June. Recent sizeable deals in Standard Life Shopping Centres, Lend Lease Retail Partnership, Henderson Shopping Centres and Grosvenor Shopping Centres appear to have absorbed much of the requirements in the market. JLLCF is aware of additional demand, but at more aggressive prices.
Pricing of these funds, apart from Grosvenor, are at small single-digit discounts to NAV (around 1-3%). Higher geared funds such as the Mall and Grosvenor are either transacting or sought at discounts of at least double digits.
Retail warehouse funds
As noted last month, a surge of demand in this sector caused pricing to move significantly for the bellwether funds. This trend continued this month, albeit less starkly, as discounts moved closer to NAV. There have been deals in Hercules Unit Trust, Henderson Retail Warehouses Fund and Standard Life Retail Park Trust, all at 2-4.5% discounts to June NAV – their smallest discounts for more than a year.
Central London office funds remain the focus for many UK investors. Premiums have remained largely unchanged from last month’s robust levels. Units in WELPUT and HCLOF have transacted at 2-3% premiums to NAV when they have become available. WELPUT also recently raised primary equity at a premium of around 4% to the prevailing NAV. This is a discount to the typical subscription price of around 6%, which several investors took full advantage of.
A small number of transactions have occurred in IPIF this month at a small discount to March NAV of around 2%. But trading in other industrial vehicles has remained muted.