• Willow Oak Advisory

Are Property Funds Holding Too Much Cash?

Direct property funds are sitting on cash levels of up to 30%, but just one fund rebates fees if the buffer gets too big.

(Morningstar) Just one of the 16 UK Direct Property investment funds rebates fees to investors if its cash holdings get too high - that's despite some property funds hoarding up to 30% of their assets in cash.

A Morningstar investigation can reveal that investors are paying charges of up 1.63% to invest in property funds when up to a third of their money is sitting in cash, not generating a return.

BMO UK Property is the only fund in the sector which refunds investors some of their money when its cash pile reaches a certain level.

Ben Yearsley, investment director at Shore Financial Planning, says: “It’s a disgrace. These funds are offering something that they are not delivering. It is plain wrong to charge investors the full annual fee on a fund when only 70% of their money is being invested.”

Sitting on Cash

Elevated cash levels in a property fund are typically a sign that managers are bracing themselves for investors to sell out of the fund. Indeed, the property sector has seen a steady trickle of outflows since 2016.

While some might say the strategy is a sensible one, others say it is unfair to charge investors a fee for active fund management when their money is sitting in cash.

Morningstar contacted all of the funds in the Investment Association UK Direct Property fund sector and just one - BMO UK Property - said it has a policy to rebate investors some of their fees if its cash levels get too high.

The fund introduced a rebate policy in August 2018 which kicks in when the fund's cash level reach 15% of its assets. At this point, it reduces its annual management charge by 65 basis points on the cash above this amount.

In the 17 months since the rebate policy was introduced, it has been applied in all but two months - December 2018 and September 2019.

Guy Glover, manager of the BMO fund, concedes that cash levels are “significant” at their current level of 24% of the portfolio. However, he disagrees that a large cash allocation can hinder performance, pointing out that costs (including stamp duty and agency fees) are generally higher for direct property investments than, say, equities, and having cash can help reduce costs that would otherwise be passed on to investors.

Read Full Article Here

63/66 Hatton Garden

Fifth Floor, Suite 23



United Kingdom

+44 (0) 203 633 6961

  • LinkedIn - White Circle
  • Twitter - White Circle
  • Facebook - White Circle

​This website should not be regarded as an offer or solicitation to conduct investment business. Past performance of investments is not necessarily indicative of future performance. The value of investments may fall as well as rise and the income from investments may fluctuate and is not guaranteed. Clients may not recover the amount invested. The investments mentioned on this website are not suitable for all types of investors. Investment advice should always be sought from a qualified investment adviser before any investment is made.

Trading and investing can be a challenging and potentially profitable opportunity for investors. However, before deciding to participate in the market, you should carefully consider your investment objectives, level of experience, and risk appetite. Most importantly, do not invest money you cannot afford to lose.

There is considerable exposure to risk in any investment transaction. Any transaction involving securities involves risks including, but not limited to, the potential for changing political and/or economic conditions that may substantially affect the price or liquidity of a currency. Investments in speculation may also be susceptible to sharp rises and falls as the relevant market values fluctuate. The leveraged possibility of trading means that any market movement will have an equally proportional effect on your deposited funds. This may work against you as well as for you. Not only may investors get back less than they invested, but in the case of higher risk strategies, investors may lose the entirety of their investment. It is for this reason that when speculating in markets it is advisable to use only risk capital.

© Copyright 2021 Willow Oak Advisory. All Rights Reserved