Aberdeen Fund Managers has become the first asset manager to lift the trading suspension on its property funds, but could see extreme volatility on account of its dilution levy.
A dilution levy remains in place which combined with the fund’s fair value adjustment means the price today is 20 per cent lower than before the EU referendum.
The suspension has been lifted a week after it was imposed. Aberdeen says the diluted price reflects the current market environment and the fact that short-term sales in the property market have relatively penal consequences.
Hargreaves Lansdown says the fund could be subject to volatility of between 15 to 20 per cent on any given day because while its fair value adjustment will be applied until further notice, the dilution levy could disappear tomorrow if the fund experiences inflows. Investors, whether buying or selling, would not know whether they will get a dilution levy if placing a trade.
Aberdeen Asset Management chief executive Martin Gilbert says: “Following the lifting of the week-long suspension, I am pleased that investors will now be able to trade shares in the funds. Investors should be aware that the price may be adjusted on a daily basis to reflect the funds’ requirement to provide liquidity and the need to protect all investors. The market may take time to find its level but I have no doubt that property will continue to play an important part in investors’ portfolios.”
Hargreaves Lansdown senior analyst Laith Khalaf says: “Investors are now playing lucky dip with the Aberdeen UK property fund, as the price could move sharply up or down, depending on daily flows. Anyone who believes they are picking up a bargain could therefore be in for a nasty surprise if a lot of other investors are thinking the same way. This risk does exists in more normal trading within open-ended property funds, but the high levels of the dilution levy imposed make it a particularly high stakes game at the moment.
“The removal of the suspension of trading of this fund was always planned by Aberdeen, they were simply giving investors enough time to cancel orders in light of the introduction of the dilution levy. Now this has passed, trading resumes, but investors should be very wary of dealing under these conditions. Those selling the fund are probably already expecting the worst, so it’s buyers who stand to be most disappointed if the price suddenly jumps up.”
