Best physical property
Legal & General UK Property
After a one year gap,has reclaimed the winner's trophy as the best property fund investing in bricks and mortar. This is the third time in four years that its managers, Michael Barrie and Matt Jarvis, have stepped on to the Money Observer podium.
The fund can invest in any type of property in any part of the country, wherever the managers believe there are compelling opportunities.
Jarvis says that it is key to their investment approach that each property has the right fundamentals, in terms of factors such as location, physical characteristics, creditworthiness of the tenant and length of the lease, and opportunities for good active management. He says that the latter, which involves activities such as refurbishments, lease restructuring and development projects, have all contributed to performance.
In terms of the types of property the fund invests in, Jarvis says that in recent years its portfolio has been biased towards sectors such as industrial and leisure rather than retail.
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It has also moved into the secondary property market on a selective basis and used active management to improve these purchases. Jarvis says that he and Barrie have a business plan for every property they buy in order to maximise returns.
Looking at particularly good past investments, Jarvis says: "The significant increase in price [of 31-33 Bedford Street, from £8.6 million to £30 million] was achieved due to our success in gaining planning for conversion of the office space, overlooking St Paul's Church Gardens, into 12 residential apartments. The timing was key and the sale price also demonstrated the continued strength of the Covent Garden market."
He says that one of the challenges in managing this type of fund is that it can experience high inflows over short time periods. This means it has to stay flexible. Although it is a bricks and mortar fund, the managers can also use tools such as derivatives and real estate investment trusts in order help manage these flows.
The 'I' share class was monitored for this award, with a three-year return of 27.17%.
Best property shares
Premier Pan European Property Share
In addition to a winner's award for the best bricks and mortar property fund, we have this year introduced an award for the winning property shares fund.
Although the performance of property shares funds can be influenced by general stock market trends as well as what is happening in the physical property market, they are often a useful way of gaining exposure to overseas property markets. Indeed, the winner of this year's inaugural trophy is, managed by Alex Ross.
Ross points out that Premier uses its own in-house research to thoroughly analyse European property companies, looking at the underlying properties they hold, their rental and lease structure and other factors. After undertaking this analysis, it gives each company a quality rating.
He says this approach gives the fund a bias towards companies with strong management teams within the sector, who are able to "add value" through active management, to deliver enhanced shareholder returns. Such companies tend to be medium and smaller companies with entrepreneurial management teams.
The fund does not have any firm limits on the countries or types of companies it can invest in. However, Ross says: "In practice it is unlikely that we would, for example, take a 100% position in any one geographic region, as this could constrain the underlying liquidity within the fund. In addition, there will always be a mix of retail and office properties as the largest property companies typically have a balanced portfolio of retail and office assets."
The fund invests in the UK as well as continental Europe. In the UK, pre-empting the recovery in secondary properties outside the London area, Ross sought out companies such asand .
Ross adds: "We are also seeing healthy returns from our exposure to German residential assets, much of which is conservatively valued at only half its replacement cost. Real estate assets valued below replacement cost should deliver healthy rental returns if there is genuine tenant demand, and in the stronger regions of Germany, such as Berlin, we are seeing demand now exceeding supply."
The 'A' share class was monitored for this award, with a three-year return of 92.84%. On Interactive Investor the 'C' class is available, which returned 97.31%.
This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.