Market News

Fund Fees Cut, Property Funds Open and a Bond Bubble Grows

September 29, 2016

There was distinct ‘back to school’ flavour about investment news this month. Politicians may be no nearer deciding what a Brexit Britain will look like, but this has not dampened financial markets or the economy.

There was more positive economic data released this month revealing there have been no signs of a major slowdown in UK manufacturing or services since the EU Referendum vote. Stock markets – which were volatile in September – have steadied, with modest rises and falls.

Perhaps the strongest sign that it is back to business as usual in the investment markets is the lifting of restrictions on many commercial property funds.

Commercial Property Funds Re-Open Doors

A number of fund managers announced they would be lifting withdrawal restrictions on their commercial property funds this month. Standard Life, for example said, investors in its £2.5 billion UK Real Estate fund would be able to withdraw money from October 17. The decision, which came just three months after it banned such withdrawals, showed that the commercial real estate market had stabilised in the wake of the Brexit vote.

Columbia Threadneedle also lifted the suspension on its two commercial property funds, while M&G said it hoped to re-open its suspended £4.4 billion Property Portfolio next month, and Henderson announced plans to re-open its £3.4 billion commercial property fund on October 14.

These funds all suspended withdrawals in the weeks following the EU Referendum, as concerns grew property valuations would tumble, in particular central London prices.

Laith Khalaf, a senior analyst at Hargreaves Lansdown, said: “The UK property fund sector appears to be returning to some semblance of normality, though there are still some big funds out there that are yet to open their gates.”

However, he warned that if there was a rush to withdraw money these funds could be forced to close again, as they may struggle to sell illiquid assets.

Rise of Smart Beta ETFs

There has been a record number of strategic-beta exchange traded funds launched this year, according to a new study by Morningstar. The number of new products listed globally has risen 23% on the previous year. Notably, the number of strategic-beta ETFs, also called smart-beta funds, has grown faster than the broader ETP market, showing there is an appetite among investors and providers for lower-cost products which offer more than a basic tracking function.

The competition in this market has led to a reduction in fees on these products, the research said.

Kenneth Lamont, a manager at Morningstar, who compiled this research said: “Growth has been driven by new cash flows, new launches, and the entrance of new players – some of which are traditional, dyed-in-the-wool active managers.” The reports it has already begun to see instances of aggressive fee reductions for some strategic-beta ETPs. For example, Vanguard now offers a suite of actively managed ETFs with fees of around 0.22%.

Fund Fees Trimmed

The increase in popularity of low-cost ETFs and ETPS is having a knock-on effect on pricing in the wider investment market. This month two investment trusts cut their fees: Aberdeen Asian Smaller Companies Trust (AAS), and Baillie Gifford Shin Nippon Trust (BGS)

Aberdeen has cuts the charges on its trust from 1.2% to 1%, bring it closer to investment trust rivals in this sector. Baillie Gifford Shin Nippon Trust, the best performing Japanese smaller companies trust, has altered its tiered charging structure. However most private investors will not benefit from the Baillie Gifford changes, as the 0.95% charge for those with assets under £50 million will remain exactly the same.

Old Mutual to Float Wealth Management Arm

Old Mutual confirmed plans to it plans to float its wealth management arm, despite media reports that this UK-based business could be sold. There are reports that the increasing cost of upgrading the wealth manager’s platform has led executives at parent company, South Africa-based Old Mutual, to consider other options, such as a sale.

A statement from the company said: “As announced in June… [our] intention is to deliver Old Mutual Wealth into the hands of its shareholders by way of a demerger and listing on both the London and Johannesburg stock exchanges. No announcement to the contrary has been made. Old Mutual Wealth will give an update on the business on October 11.

Meanwhile, there were reports that Premier Asset Management had hired brokers to explore a possible market float. The Sunday Times said this asset management business had appointed Numis Securities and Keefe, Bruyette and & Woods to determine whether the business can list before the year is out.

FCA Warns Against Property Funded Retirement

Andrew Bailey the chief executive of the FCA warned savers not to rely solely on property to bail them out in retirement. He said a retirement portfolio focusses on housing ‘could be self-defeating’.

He said he was worried increased demand for housing as an asset would continue to push up prices, but these may not be sustainable due to high levels of indebtedness. However, he conceded that property had a part of play in a wider portfolio.

Bailey’s comments come weeks after Bank of England chief economist Andy Haldane said property is now a better bet for retirement than a pension.

New Warning on Bond ‘Bubble’

Martin Gilbert, the chief executive of Aberdeen Asset Management is the latest leading investment figure to voice concerns about the bond market. He said the fixed income market was approaching a “dangerous situation” as action by Central Banks have continued to push up prices. In August the Bank of England cut interest rates to 0.25% and expanded its bond buying programme by £70 billion.

Fashionable ETFs Launched

BlackRock’s latest ETF range aims to capitalise on global ‘megatrends’ such as the ageing population and the rise of robotics. These four iShare ETFs will have a charge of 0.4%. Each ETF will invest in an index that holds at least 80 stocks, to ensure diversification. These indices have been created in collaboration is Istoxx and FactSet.

The other two will be focused on healthcare, innovation and digitalisation, which covers areas such as cybersecurity, electronic payment processes and financial technology.

Tom Fekete, head of product for iShares Emea at BlackRock, says: “These ETFs look to capture the opportunities created by long-term structural trends, by identifying the companies most aligned to them. They are a new set of tools that investors can use to express their views on these trends.”

Source: Morningstar. Emma Simon | 29/09/2016

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