June 2013

By | 16th July 2013

The weakness across virtually all equity markets in June was a continuation of the feared (or imagined?) consequences of possible monetary tightening by the Fed. It is interesting to note that the S&P 500 was down only -3.7% from its recent peak of 21st May as investors back the expectation of a US recovery alongside the monetary tightening. However the potential impact of tightening yields within a far weaker European context has been viewed much more negatively. The FTSE 100 fell -9.3% since the recent peak (21st May) and -5.6% in the month, whilst the fund’s benchmark, FTSE EPRA/NAREIT Developed Europe Capped Index Total Return (in GBP) fell -5.9% in the month slightly underperforming the broader market. Real estate stocks have become increasingly popular over the last two years partially because of their perceived ‘bond like’ characteristics offering steady income which is significantly higher than that offered by BBB corporate bonds. We maintain the view that in addition to this yield differential there is the opportunity for rental growth (in a number of sub-markets across Europe) together with the possibility of property development gains (from certain portfolios) which adds to the attractiveness of the asset class today. This sell off from 21st May to the end of June reached -10.6% for our benchmark and now provides us with an investment opportunity.

Looking back over the month Continental Europe underperformed the UK with the former down -6.9% and the UK falling -4.3%. Geographically the major losers were Austria (-9.3%), France (-10.2%) and Italy (-10.2%). It is worthy of note that the Italian property companies are up 14% year to date even after this correction. They are an example of stocks which have been a beneficiary of the tightening in peripheral European bond yields which came to an abrupt halt in mid May.

The NAV fell -6.0% slightly underperforming the benchmark(-5.9%). Relative performance was aided by our overweights in French offices together with our underweight to UK large caps, Swiss and Belgian stocks. The surprise was Switzerland which traditionally outperforms when the Eurozone weakens – but not this month. Our performance suffered from the overweight to UK smaller companies,(particularly St Modwen and Max Property) and our European shopping centres exposure (which has been steadily falling).

The Trust’s AGM will be held at 12 noon on 23rd July at the Royal Automobile Club, London SW1. All shareholders are welcome.

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