There seems to have been quite a lot happening in the world of open-ended funds since the Autumn, so we thought that it would be a good time to compose a blog about the subject.

Brexit

As we head, seemingy inexorably, towards a choice of humble pie or no pie, the risk of a "no deal" Brexit weigh increasingly on investors minds. We are already seeing significant redemptions out of some UK open-ended funds open to retail investors, although none have yet reached the point where they need to suspend redemptions. The reaction of the press to redemptions suggests that they did not receive the FCA note that they want to remove the stigma from suspending.

As we get closer to Brexit day, it is worth remembering that one of the issues in 2016 was that the referendum result was close to the quarter end and it was quarter end asset allocations rather than any panic on the day of the referendum that pushed funds into suspension. We have the same at the end of March with an even more condensed timetable. 29th March is the last working day of the month - the 30th and 31st are the weekend. The architecture of the investment platforms mean that allocation changes to the model porfolios through which an increasing amount of retail investment takes place are immediate. Events that encourage many model portfolios to reduce their allocation to real estate at the same time creates a significant risk of an unsustainable level of redemptions.

So are we now in a better position than we were in 2016?

On the plus side, at least if avoiding suspension is the main concern, funds are holding a higher proportion of cash, and seem to be selling assets ahead of redemptions rather than reacting after the event. Some managers are taking steps to change the way in which their funds price subscriptions and redemptions (see "Janus Henderson" later in this blog).