Indirect investment market: Jones Lang LaSalle market commentary

UK market overview

The Jones Lang LaSalle Balanced Fund Index fell again, by -0.30% in October, with a 12- month return of -1.92%, writes Ashley Marks.

Including secondary market pricing, this falls to -4.53%, reflecting investors’ continued nervousness about funds’ projected short- to medium-term performance. Redemption queues are increasingly common for open-ended funds, which is having a further impact on secondary market pricing.

Average pricing of diversified funds fell the most, by around 1.5%, followed by industrial, down more than 1%. Pricing improved marginally in all other sectors.

Balanced funds

Pricing for balanced funds had generally been between net asset value and bid price all year. Vendors in the majority of funds are now quoting lower, at around bid price.

Rumours that some fund managers are having to manage large redemption queues has led to units in a handful of funds being offered at more than 10% discounts to NAV. There is concern that this trend could soon spread to other funds. Against this trend, Lothbury PUT and Hermes PUT continue to transact at a small premium to NAV.

Retail funds

There have been secondary trades at 5-8% discounts for Standard Life’s, Lend Lease’s and Henderson’s shopping centre funds. Modest price movements in all three kept  average pricing stable compared with last month. The Mall continues to attract interest at discounts to NAV of around 30%.

Retail warehouse fund pricing improved slightly in October, thanks largely to deals  in Henderson’s and Standard Life’s funds. Hercules also remains liquid. Average pricing for the sector fell by around 0.75%, with discounts of around 10% for geared funds and 5% for ungeared.

Industrial funds

Continuing price falls in October were again limited to funds with secondary assets and/or relatively high gearing. Ashtenne’s pricing held at a around 45% below NAV, but pricing on the open-ended Falcon fund fell to beyond a 10% discount.

The Industrial Trust now only interests potential buyers at significant discounts, due to concerns about its performance. Of the more frequently traded funds, SWIP AIPUT pricing held firm at around -2%, while L&G rose around 1% to a discount close to 6%.

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Office funds

Despite buying interest, a lack of vendors in WELPUT has pushed its pricing to around a 3-4% discount to NAV. Potential buyers of Henderson’s Central London Office Fund are seeking discounts to NAV of around 4-5%, with the  impending fund extension affecting pricing. There is a small amount of demand for UBS CLOVA, which is rarely transacted on the secondary market.

Other funds
A solid income profile and traditionally anti-cyclical behaviour has created strong interest in the Unite UK Student Accommodation Fund and a number of recent deals at small premiums to NAV. L&G’s Leisure fund is still in demand at pricing around NAV, as the fund seeks equity on the primary market.

Potential vendors of Quercus would consider selling at a 15% NAV discount, due to concerns about its extension and future performance, but interest remains scarce.