June 2011

By | 15th July 2011

Whilst the NAV (with income) of the share class rose +1.33% in the month, all the gains were made in the last week with the index rising 4.6% between 24th and 30th June after a dismal previous three weeks. Once again, the villain of the piece was eurozone sovereign debt concerns. Whilst Greece is once again at the epicentre, it is not the core of the issue. The central concern for markets is the contagion resulting from the losses incurred by other eurozone banks if Greece was to default. For a leveraged asset class such as real estate, the ability of banks to lend is critical and any impairment is an issue. A characteristic of such ‘risk off’ periods is that the stock performance in our universe becomes very top down driven and the spread of regional / country performance widens. Not surprisingly, the UK, France, Germany, Switzerland and Norway were the regional outperformers. The UK was the top performer (in local currency terms) powered by strong performance from the London focused and large cap stocks. The relief felt (post the Greek double vote) translated into a 6% rally in the UK stocks. This helped performance for the Fund.

All the Swedish stocks suffered very poor performance early in the month falling over 7.5% before recovering slightly to end the month down ‘only’ -4.3% (in SEK). This performance was in line with broader Swedish equities, and reflected the concerns of a global slowdown on an export driven country. Rising base rates (the highest in Europe) will also limit earnings growth on businesses with high levels of floating rate debt.

Whilst the Fund was a slight net disinvestor in the first half of the month, we did participate in a small German office investment company IPO, Prime, in the second half of the month investing £1.5m. Initially mispriced (at a range of €7-9 per share), it was withdrawn and reoffered at €6.2 per share. At a 30% discount to NAV the issue price is an attractive entry point into offices in Germany’s four largest cities.

Gearing remains modest at 5.5% and the shares go ‘ex div’ (of 3.7p) on 6th July, payable on 2nd August.

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