Investment trust structure proves its worth for TR Property

The Super 60 member posted benchmark-beating performance in the six-month period to the end of September.

The chairman of TR Property (LSE: TRY), one of interactive investor’s Super 60 choices, has praised the investment trust structure for proving its worth during a challenging period for the asset class.

This morning (27 November), the trust issued its half-year report to 30 September 2020 and the numbers make good reading.

The trust delivered a net asset value (NAV) total return of 14.8% over the period, ahead of its benchmark total return of 9.8%. The share price total return was lower than the NAV return, due to the trust’s discount widening slightly over the six-month period, but nonetheless was also ahead of the benchmark, posting a gain of 11.3%. The trust’s benchmark is the FTSE EPRA/NAREIT Developed Europe index.

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In addition, the trust has maintained an interim dividend of 5.20p, the same as a year ago.

David Watson, chairman of TR Property, pointed out that since the end of March there has been a “steady recovery” in the area of the market the trust invests in, namely the shares of property companies, mainly listed in Europe, as well as exposure to the UK.

Watson cautioned that “while these figures are comfortingly positive, they are a six-month snapshot which commenced shortly after the equity market had fallen sharply”.

The chairman, however, stressed the trust’s focus on property businesses with the most sustainable income and emphasised the benefits of the investment trust structure. On the latter point, Watson noted that “our closed-ended, permanent capital structure, as an investment trust, has again proved its worth with our ability to acquire shares and take a longer-term view when others are driven to sell”.

Having a fixed pool of assets (one that won’t fluctuate with investor demand) is particularly suitable for specialist trusts holding assets that cannot be easily or swiftly bought and sold, such as property, private equity or very small companies. This is because managers don't have to sell their holdings to release money back to investors looking to liquidate their investments when markets dip; instead investors sell their shares on the stock market and the share price takes the strain.

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Marcus Phayre-Mudge, the fund manager of TR Property, said the initial impact of the pandemic on European real estate equities saw the benchmark drop 36% from the pre-Covid peak on 19 February 2020 to the most recent trough on 18 March.

He added: “The new financial year, therefore, started close to these depressed levels. While the performance in the first half when viewed in isolation is encouraging, it is important to note that the sector remains over 19% below the pre-Covid-19 peak.”

Phayre-Mudge noted that one of the drivers behind the outperformance over the six-month period was the trust’s overweight position (holding more than the index) to logistics/industrials and its underweight position (holding less than the index) to retailers.

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TR Property is an unusual investment trust because it is the only one listed by the Association of Investment Companies (AIC) that invests mainly in the shares of property companies rather than physical property. This allows Marcus Phayre-Mudge, its manager since 2011, to adjust the portfolio more readily than if he were investing in direct properties, which can be hard to buy and take time to sell. When analysing potential investments, he and his team assess property assets, balance sheets and long-term records of managements, using capital effectively to build asset valuation and earnings expectations for each company.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.