Over the last few years the Saltydog Tugboat portfolio has avoided the frequent stock market drops by having a large percentage of its money invested into the Slow Ahead Group in what we fondly refer to as the ‘Slow Property’ sector. During this time these commercial property funds have consistently made small monthly incremental gains allowing the remaining portfolio money to be invested into the more adventurous sectors of the market. This smaller amount has from time to time been trend-following in Japan, Emerging Markets, India and Gold funds. It has made reasonable gains whilst the larger amount has given the protection against the downside in the Stock Market. For three years this has worked out very well giving a total annualised gain in excess of eight percent whilst taking very little risk.
Recently there has been a fundamental change in the pricing of the ‘Slow Property’ funds. Funds such as M&G Property Portfolio, Threadneedle UK Property Trust, Henderson Property, Standard Life Property and Aberdeen UK Property would appear to have moved their selling prices from an “offer” price to the lower “bid” price. This has reduced by around 5% the money received by sellers, and similarly reduced the value of stock held by investors in these funds by the same amount. The reason given for this action is that unprecedented large amounts of money have been withdrawn from these funds in the first quarter of 2016. The fund managers, by lowering the unit price, are saying that they are sharing the cost of any forced property disposal between the remainers and the leavers. I guess this is not an unreasonable argument. It does not help us however, and it does beg the question, if the money flows back into these funds, will they then reverse the price back to the offer price? It will also be interesting to see whether these funds return to those nice steady positive monthly increments of old!
The question we have to ask ourselves is why has there been this avalanche of money from these funds? Is it to do with BREXIT or perhaps it is that the “movers and shakers” – the “men upstairs”- believe that the UK commercial property market has been operating in a bubble and is due a correction? Whatever the reason, we need to decide whether to stay invested or not? It requires a considered decision. Doing nothing is probably not the answer, as staying in the middle of the road, and not making a decision, usually gets you run over. Fortunately our exposure to these funds has been reduced by the foresight of Richard who has been gradually selling them over the last month. I guess if you believe that Britain is likely to stay in Europe and that a sensible price correction has taken place, then why not stay put and remain invested? You have taken the knock, which has happened and is in the past. Normal service should be resumed. The alternative I guess is to sell up, perhaps take a further dilution charge and move into cash whilst the storm passes overhead and wait to see what tomorrow brings. It would be a great shame if these funds were not to resume their role in the Saltydog investment philosophy.
It is worth remembering that the pessimist complains about the wind. The optimist expects the wind to change. The realist adjusts the sails.