Many open-ended property funds have been forced to refuse investor redemptions or write down the value of their assets in the wake of the vote for Brexit, due to a deluge of investors wanting to take their money out of the funds. Many remain closed or are charging investors hefty exit penalties due to their inability to unload their assets quickly enough to pay back investors running for the exits. And now people are starting to ask whether bond funds could be the next victim of a Brexit vote panic.
Since the financial crisis, liquidity in the corporate bond market has been squeezed due to investment banks retreating from the market, resulting in far fewer buyers for corporate credit. The corporate bond market is priced to perfection and some fear that a sudden mass exodus of investors could result in bond fund investors finding themselves trapped in their funds.
Adrian Lowcock, head of investing at AXA Wealth, argues that this is a highly unlikely scenario, because bonds are easier to sell than large chunks of bricks and mortar. He also points out that bond funds are more diversified. “Property is fundamentally illiquid,” he says. It takes a long time to find a buyer and you cannot break a building down in order to sell it, whereas bonds, like shares, can be traded in fractions.”