Fund information

January 2012

Pan-European real estate equities rose 3.85% in the month. This is a modest total figure compared with the performance from the intra-month low point on 9 January to the end of January which was +8.6%. The wider European financials sector rose even more, 13.3% from 9 January whilst the broader equity market responded more modestly to this renewed 'risk-on' phase with EuroStoxx 600 rising 'just' 3.4%. The performance laggards of Q4, 2011 principally the share prices of the Continental financial institutions responded to the consensus view that the long-term refinancing operation programme providing effectively unlimited three-year liquidity by the ECB was a significant positive for the Eurozone banking system. Real estate, as a levered asset class predictably benefitted. Our view is that such liquidity is most welcome but it is only that - liquidity - and not the solution to the problems of bank and sovereign solvency.

The Fund reduced exposure slightly in the month, raising 1.5% of NAV through sales in the last few days. The Fund had relative outperformance in the month with the NAV with Income rising 4.7% exceeding the index which rose 3.8%. The relative overweight positions to the UK (which rose 5.4%), Italy (+7.6%) and Norway (+15.2%) helped, whilst our underweights to Austria (-7.5%) and Switzerland (-0.6%) also aided performance. In the UK, the Central London focused stocks performed well with Great Portland +11.5%, Shaftesbury +8.4% and Derwent London +7.2% whilst the large caps with London exposure, Land Securities +6.1% and British Land +7.1% also performed well.

The sales made reflected the strong performance of a number of stocks particularly our largest position, Unibail. The company announced good results on 1stFebruary but the share price had been driven to €150 per share and the year end NAV was reported at €137.5. The business is very well run, owns excellent assets and the share price performed comfortably ahead of its peer group in 2011. The Fund now has a market neutral position and the stock remains our largest absolute position.

Whilst the accommodative practices of the ECB are most welcome, we continue to see polarisation in physical property markets with a wide disparity of returns across sub-markets. GDP forecasts have begun to improve particularly in the core Continental European countries as well as in the UK and our focus remains on well financed businesses operating in the major centres - both commercial and retail in these countries.


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