August 2014

By | 16th September 2014

Once again the peak holiday month in Europe proved to be busier than expected. Whilst reduced volumes of trading can create more volatility, particularly in our smaller companies we saw plenty of activity across our universe. The sector rose a healthy +2.8% in the month but that belies a dramatic intra month movement of -2.2% in the first week followed by a sustained +5.2% rally into the month end. The Trust’s NAV with income exceeded the benchmark by a whisker at +2.9% whilst the share price rose a robust +4.7%.

Once again sentiment was driven by the expectation of further intervention and stimulus from the ECB. This anticipation was further fuelled by Draghi’s comments at Jackson Hole, and followed early in September with a rate cut (the main refinancing rate was cut from 0.15% to 0.05%) and an announcement of both bond buying and ultra cheap 4 year loans which are likely to boost the ECB’s balance sheet to over €1trillion. The ECB remains the only major central bank not to embark on full scale QE.

Back at the company level, the end of July and early August sees a flurry of (June) interim results. From the UK the message was one of asset values continue to rise slightly ahead of expectation with the 4.1% yield on Land Securities’ purchase of a share in Bluewater being reflected in the consensus beating valuation of Intu’s portfolio. The UK rose 3.1% in the month with Unite, the student accommodation specialist the top performer (+7%) on a combination of strong results and confirmation that it would accelerate a normalised dividend. Investors do like to see cash flow from their property stocks.

With the expectation of further monetary easing in the Eurozone and 10yr Bunds driven below 1% German property stock strength was to be expected. Our strategy continues to focus on markets with strong fundamentals as opposed to mere beneficiaries of (temporarily) cheaper debt and our overweight in German companies – particularly residential (nationwide) and industrial (southern focus) helped performance in August with Germany the top performing European country rising 5.6%.

The Trust also added to its direct property portfolio in the month completing the purchase of a 53,000 ft logistics unit at the junction of the M4/M5 motorways. The unit is let to Yodel until 2019 at a rent of £325,000. The book cost of £4.76m, reflects a net initial yield of 6.7%.

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