Client property exposure
Our latest update focuses on exposure to commercial property.
As we approach the close of another week of the coronavirus crisis, we are continuing to monitor the commercial property exposure within your portfolios. The critical information at this stage is that both Janus Henderson UK Property and Aberdeen Standard UK Real Estate investment funds have suspended trading1. The underlying cause of the suspension is the inability of the independent valuer to accurately value the underlying properties owned in the current market.
The suspension seems to be across the direct property asset class as a whole, although we can confirm that neither fund has experienced significant outflows to date, and therefore are not being forced to sell properties in unfavourable conditions.
It is important to understand our reasoning for the inclusion of commercial property as a core holding within our model portfolios. Bricks and mortar property funds offer high and stable income through inflation-linked and secure cash flows, whilst additionally diversifying risk through their lack of correlation to traditional asset classes such as fixed income and equities. Exposure to traditional physical property funds remains at under 15% across our model portfolios.
We suspect that these funds are seeking to protect investors at a time of unprecedented market volatility and the accompanying potential irrationality and panic that could spread to direct property. Given that demand for property fluctuates, we expect suspensions in times of high volatility, yet we still find the benefits of investing for the long term outweigh the risk of illiquidity in the short term.
As ever, we will continue to monitor this closely.
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