February 2015

By | 16th March 2015

Markets continue to be dominated by macro events. Whilst January saw the unexpected removal of the EUR/CHF cap by the Swiss national bank coupled with the ECB’s stronger than expected open-ended promise on QE, February saw Sweden’s Riksbank cut its repo rate to -0.10%. Central banks remain doggedly determined that such super loose monetary policy will stimulate lending or at the very least make sure their respective currencies don’t attract unwanted buyers (and resultant strengthening). Once again property stocks enjoyed a positive month with the benchmark, FTSE EPRA/NAREIT Developed Europe TR Net (GBP) climbing 2%. However when viewed in local currencies the returns were even stronger. The Eurozone constituents in EUR rose 5.1% whilst the Swedish stocks rose an astonishing 12.5% in SEK. Swedish property companies are amongst the most levered in our universe (average LTVs are over 50%) and also the first to report FY2014 numbers. The anticipation of further yield compression on such leveraged balance sheets has resulted in these stocks standing at an average 52% premium to asset value.

Swiss property companies also had a very strong month. With the central bank now charging 75bps for the pleasure of looking after your CHF it is no surprise that (relatively) stable and high yielding dividend income streams such as those from the largest property companies, PSP and Swiss Prime have proved popular, the stocks rose +4.3% and 8.7% respectively.

The announcement of significant QE by the ECB helped drive expectation of asset value growth and share prices, it had the opposite effect on EUR which weakened against GBP by 3.3%. This of course reduced these Continental share price gains when viewed in GBP. Year to date EUR has weakened by over 7% against GBP. This is clearly a helpful by product of massive QE within the Eurozone making their exports more competitive whilst importing some inflation. We maintain our overweight to Germany which we see as a net beneficiary. The Swedish currency also weakened by 1.7% in the month but the YTD movement has been virtually flat. Shareholders are reminded that the Trust’s FX policy is to maintain exposures in line with the benchmark weightings.

The weakest performance was from the UK stocks which reflected various factors including some uninspiring results from the two largest retail property specialists, Hammerson (-1.9%) and Intu (-3.2%). Whilst the former at least showed robust performance from its fastest growing investment area (premium designer outlets) whereas the latter produced like-for-like rental growth of -3.2% coupled with the highest leverage amongst the UK large caps. Relative performance of the fund in the month was aided by the two best performers in the UK, St Modwen (+16%) and Unite (+12.3%). Unite produced solid results, an increase in the dividend and a positive outlook driven by its development programme and robust demand for the asset class by both tenants and investors.

The top performing German name was Deutsche Annington (11.9%) which announced a 94% acceptance rate for its acquisition of Gagfah. The acquisition was split between cash and new shares in DA. The combined business will own over 350,000 apartments and have a market cap in excess of €23bn.

The fund’s NAV rose 2.4% in the month. The benchmark rose 2.0% leading to 40bps of relative outperformance.

Download factsheet