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Janus Henderson property fund widens spread to manage volatility

Fund group will change pricing structure next month, widening spread between 'buy' and 'sell' prices to avoid pricing swings that have plagued the sector.

Janus Henderson property fund widens spread to manage volatility

Janus Henderson is to switch the pricing structure on its £2.7 billion property funds, widening the spread between the 'buy' and 'sell' prices in a bid to avoid the pricing swings that have plagued the sector.

From 25 March investors buying into the Janus Henderson UK Property PAIF and UK Property PAIF Feeder funds will pay a price roughly 4.5% higher than that those redeeming their holdings will receive.

That is much higher than the current 0.25% spread between the 'buy' and 'sell' prices.

By moving to this structure, the costs of buying and selling properties will be borne by investors buying into, or selling out of, the fund.

Janus Henderson said this would avoid the need to swing the pricing of the fund from 'offer' to 'bid' basis to deal with money leaving the fund, and vice versa when investors are buying.

'We believe the change in pricing approach will better reflect the change in the value of the underlying assets, and will not be distorted by money flowing in or out of the funds,' it said in a statement.

The fund group has been forced to repeatedly swing the pricing of its property funds in this way over the last three years, as the sector has come under pressure following the Brexit vote. The pricing of the fund has moved around 4.3% each time.

The funds' pricing moved to the 'bid' basis, employed when the managers are dealing with more redemptions than new investments, in the month before the EU referendum.

After implementing a 'fair value adjustment' (FVA) on the day of the referendum result that reduced the value of investors' holdings by 5%, Janus Henderson was forced to suspend dealing in the funds on 5 July 2016.

Dealing in the fund resumed three months later and the FVA was removed. Pricing on the fund has largely remained on a bid basis since then.

Janus Henderson has moved the fund pricing to an offer basis eight times over the last 18 months, but each time has brought it back down to the bid pricing at which it currently trades. In a particularly volatile period for flows early last year, pricing of the fund switched between the two four times in two months.

'A number of investors stated that they found this unsettling,' said Simon Hillenbrand, Janus Henderson head of UK retail, in an update to investors. 

'We received a lot of feedback from transacting clients and long-term holders of the fund to the effect that they did not view the price volatility in a positive light.'

Hillenbrand added the new pricing approach 'encourages investors to treat property as a long-term investment'.

Existing investors in the two funds will not see any impact to the value of their holdings as a result of the pricing change, as the 'sell' price of units will be calculated on the same basis they currently are.

Many investors buying into the fund, however, will be paying roughly 4.5% more than they do under the current pricing structure.

For investors in the funds' A share class intended for retail buyers, that hike will be more than offset by Janus Henderson's scrapping of a 5% initial charge. However, that initial charge is discounted by some platforms, meaning some investors who hold these units through funds supermarkets will pay a higher price to top up than they currently do.

The I share class also carried by platforms does not feature an initial charge, so all investors holding these units will face a higher charge to top up from 25 March.

The property fund sector has come under pressure since the Brexit vote, as investors have withdrawn money due to fears over the impact of the UK's exit from the European Union.

Most open-ended funds were forced to suspend dealing in the immediate aftermath of the vote, only reopening months later.

Strains re-emerged in December, with investors pulling a net £336 million from property funds as prime minister Theresa May was forced to abandon parliament's vote on her Brexit deal.

Both Columbia Threadneedle and Kames were forced to move pricing of their property funds onto a bid basis to deal with withdrawals, resulting in a hit of around 6% to investors.

City regulator the Financial Conduct Authority (FCA) has meanwhile stepped up its monitoring of property fund flows, demanding daily updates from investment groups, according to the Financial Times.

The FCA is planning to toughen its rules for property funds following the fallout from the Brexit vote, which provided the latest example of the limitations of investing in property using open-ended funds. 

Their structure means they have to cancel shares and sell assets when they suffer redemptions, which can prove problematic where a fund is invested in a relatively illiquid asset like property.

Closed-ended funds like investment trusts, which have a fixed number of shares, do not suffer from this issue. 

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