July 2013

By | 16th August 2013

European equity markets continued their bounce from the June low (24th) virtually uninterrupted throughout July. Property stocks were no exception and as a leveraged asset class they were destined to perform well when markets were calmed by further protestations from central bankers that short-term rates were not scheduled to rise until there was firm evidence of improvement in economic fundamentals. Those signs have begun to appear in UK data and coupled with the government’s (possibly ill considered) stimuli to the housing market UK stocks saw strong outperformance. The Fund’s NAV rose 7.44% whilst the benchmark rose +6.62%.

The top five performers were all UK smaller companies, particularly industrial and residential backed businesses, gaining between 16% (Hansteen) and 20.3% (Grainger) in the month. St. Modwen – principally a mixture of industrial property and residential land, rose 17%. The best performer amongst the large caps was Segro (+11.3%), the only industrial large cap. Performance was driven by the improvement in GDP forecasts. This has already fed through in both the services and manufacturing segments of the PMIs.

Elsewhere in Europe it was a mixed month for property stocks. In local currencies France was the strongest performer (+6.8%) with Klepierre and Gecina both +13.5% on the back of good half-year numbers and the promise of further internal improvement. The Netherlands was amongst the weakest (+2.6%) as investors’ concerns regarding consumer numbers and falling house prices found little comfort in domestic data. The same concerns could be felt in Italy where the political situation continues to add risk to a shrinking economy. The German residential names were relatively weak in the month but here it was stock specific rather than more fundamental economic issues. Sentiment was driven down by a combination of the reduced size of the Deutsche Annington IPO coupled with the stock overhangs in Gagfah and LEG where lock-ups from previous private equity holders and their banks weighed heavily.

The Fund’s relative outperformance in the month was driven by the broad overweight to the UK and in particular to smaller companies coupled with our participation the Green REIT IPO and the primary issuance in New River Retail.Green REIT is the first Irish REIT and raised €310 million to invest principally in Dublin. The issue was heavily oversubscribed and the stock rose to a 15% premium to the issue price. New River raised £67 million for acquisitions at 205p (currently 243p). The combined investment was £8m.

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