An old favourite calls out to income-hungry DFMs; Bucking the trend in a mad month
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Physical decline
The UK’s lockdown exit strategy is due to be unveiled this weekend, but some in the funds industry are readying for another 18 months of remote working. For many workers in a variety of industries, the latest ‘new normal’ will persist for some time to come. And that has obvious implications for wealth managers’ own property allocations.
It’s been several weeks now since open-ended property fund valuers said they were effectively unable to put a price on those portfolios. But this group are just the tip of the iceberg for DFMs: their own real estate interests have long since encompassed investment trusts and infrastructure strategies, too.
So while Reits are still open for business, questions over rent collection and exposure to sectors like travel and leisure mean sentiment’s unlikely to bounce back any time soon. LXI Reit, the go-to option in the space for wealth managers, continues to trade at a near double-digit discount. Virtually every other peer remains sat on a discount of 20 per cent or more. There’s been little in the way of bargain hunting on this front, despite yields now looking more attractive.
Outside of Reits, it’s infrastructure that been a big favourite for wealth firms in the recent past. Many of the open-ended vehicles have struggled to keep pace with their benchmarks this year. In the investment trust world, however, there has been an opportunity to take advantage of discount dislocations.
GCP, 3i Infrastructure and Sequoia are now joining HICL in trading at a premium again, but still remain well-off their 12 month averages. And brokers are still positive despite the likes of 3i and Sequoia having exposure to the transport sector: Stifel upgraded 3i after its results this morning, noting that its stable dividend looks attractive in the context of the wider equity market. Wealth firms may well be inclined to agree once again.
Mixed fortunes
Comprehensive data on UK retail fund selectors’ actions during a dramatic March confirms many prior assumptions – but also confounds others.
Headline figures detailing a record £10bn in withdrawals aren’t that surprising in the grand scheme of things. More unusual is the fact that equity funds were relatively well insulated from this turmoil. Net redemptions from the asset class stood at £1.1bn, less than was seen in either August or September last year.
The likes of Numis, who said at the height of the panic that there was little evidence of a mass exodus from equity funds, have been vindicated. And the flows into UK index trackers that we reported in April translated into a particularly contrarian month for UK equities.
UK All Companies funds took in a net £964m on the month, well in excess of the £770m garnered from the brief election-time euphoria last December. Physical property was also relatively immune from the panic – confirmation that there was no mass selling in advance of the raft of fund suspensions.
That left fixed income funds to bear the brunt of the bad news, with some £7.5bn leaving the asset class on the month. The corporate, strategic, and global bond fund sectors each saw more than £1bn depart. No sign here of discretionaries’ late-March interest in buying the dip in credit.
To conclude, we’ll note that while DFMs are often out on a limb when it comes to fund-buying behaviours, that wasn’t the case this time round. Their selling was largely matched by those around them, with £2bn flowing out of their coffers as well as those of the fund platforms and UK IFAs.
Grid lock
UK regulators’ new ‘regulatory initiatives grid’ is an attempt to be clear on its priorities over the coming months.
The initiative has been brought forward in a bid to give firms more clarity during the coronavirus crisis, the FCA having already postponed a large amount of work as a result of the pandemic. The problem, of course, is that the economic uncertainty also makes it difficult to say for certain when regulation as usual will begin again.
So there’s a good degree of uncertainty regarding regulators’ latest estimates. That’s particularly the case for the retail investment industry. Two of the most relevant pieces of work – the review of Mifid implementation, and a survey of 300 open-ended funds – are particularly light on information at the moment. As it stands, that’s probably a welcome relief for the industry rather than cause for concern.
