April 2024

The first month of the new financial year was a microcosm of much of the previous year’s gyrations. The sector travelled south for the first two weeks of the month (-6.3%), only to then stage a healthy rally, recovering back to -2% for the month as a whole. The analogy of a ping pong ball in a horizontal tube once again feels apt, with investor sentiment governed by central banks’ expectations and the handful of critical datapoints. The hawkish theme earlier in the month turned more optimistic, with some dovish commentary and slightly softer-than-expected data. It is now likely that European central banks may cut rates ahead of the US Federal Reserve. This feels logical given how slowly Europe (including the UK) is growing and how inflationary pressures are waning. However, conditions are febrile, with global factors quickly affecting key cost inputs such as the price of oil.

First-quarter results ranged from slightly disappointing through to strong. In Sweden, both Balder and Castellum underwhelmed, with weaker like-for-like metrics than the market had hoped for. However, given their respective levels of leverage (borrowing), both share prices are much more susceptible to bond prices and enjoyed good price recovery following the weaker-than-expected nonfarm payroll figures; this is a classic case of the macro (broader economic news) being more important than the micro (company specific). Vonovia, the largest property company in Europe, managed to convince investors that its disposal plan was on track. Again, the drop in the yield of the 10-year bund was probably the more important driver of the +10% gain between 16 April and month-end. Retail names also maintained positive momentum, with improving retailer sales helping to buoy Carmila and Mercialys, while the biggest winner was Unibail, which returned over +5% during the month.

Offensive capital raises continue, with Argan being the latest name. The company raised €150m, only its second raise since the initial public offering in 2007, and addressed some investors concerns around leverage and the need to make disposals regardless of market conditions. The founding family did not take part, allowing the free float to materially increase. We participated in the raise at €74 per share.

The all-paper (shareholders receiving shares not cash) takeover of UK Commercial (UKCM) by Tritax Big Box was voted through. This was not surprising given Phoenix Life’s 43% holding in UKCM, but it was encouraging to see several press reports highlighting the cross shareholdings (and fee rebate) between Phoenix Life and Abrdn (the manager of UKCM and the majority owner of the manager of Tritax Big Box). The tiered fee structure of Big Box has previously resulted in shareholders benefiting from the economies of scale through lower management fees. It was therefore disappointing to see a c.20% increase in the assets under management (gaining UKCM’s portfolio of £1.2bn) but no corresponding improvement in the ad valorum fee rate card. One reason might be that the fee rebate that Phoenix received from Abrdn (given their 43% holding in UKCM) is going to persist in the newly merged entity, hence less net profit for the manager and better terms for just one shareholder. It will come as no surprise that (a) we voted against this transaction and (b) the Chairman of UKCM abstained, citing “a more open and comprehensive sales process could have brought forward a better outcome.”

As expectations around the potential for rate cuts improved in the latter part of the month, we added to those more interest rate-sensitive positions: German residential and certain Swedish names.

	2025/2026	2024/2025	2023/2024	2022/2023	2021/2022
NAV (Inc)	– 0.5	11.6	22.5	– 19.3	– 16.5
Benchmark	– 0.1	9.7	21.4	– 19.8	– 21.5
Share Price	– 2.0	13.8	22.5	– 24.5	– 13.5