May 2016

By | 16th June 2016

The Trust’s NAV rose 1.49% in the month outperforming the benchmark which rose 0.97%. Encouragingly the share price rose 1.75% resulting in a slight tightening in the discount to the NAV (including accrued income) of 10%. The Trust reported its full year results on 23rd and the Board announced a full year dividend of 8.35p, an increase of 8.4% on the previous year, reflecting the growth in underlying income from property companies across the UK and Continental Europe. The Chairman also commented on the revenue outlook remaining positive with interest costs remaining low and earnings stability highlighted as an ongoing key quality of the asset class.

Sterling strengthened against the Euro by 2% in the month as various polls predicted an improvement in the odds of remaining in the EU. This provided a tailwind to UK stocks coupled with the usual large number of May results announcements (for those with March year ends) which were either inline or exceeded market expectations. Land Securities (a large overweight for the fund) rose 3% in the month following a greater than expected increase in the final dividend. Investors also appreciate its record low leverage in these uncertain times. Other names which responded strongly in the month included Segro (+4.8%) on further demand for distribution and industrial assets, Grainger (+9.7%) on good results and clarification of strategy and Workspace (+3.9%) which looked oversold YTD on the risks to SME demand for space in the face of slowing economic conditions. Interestingly the self storage stocks Big Yellow (+3.5%) and Safestore (+3.2%) responded to good results from the former but also investor demand for stocks with a growth story and perceived secure earnings streams.

The strengthening GBP also dampened returns from Continental stocks which collectively rose nearly 3% when viewed in EUR. There was renewed emphasis on income stability across the Eurozone with outperformance from German and Austrian residential businesses, Belgium stocks and the higher quality Dutch listed businesses such as Eurocommercial (+3.6%). The two Italian companies – Beni Stabili and IGD both went ex dividend well in the month recovering more than their respective 3.7% and 5.0% dividend yields. Italian sovereign bonds also rallied in the month following announcements of progress of reform in the banking sector.

Swedish and Norwegian stocks were up +4% (in local currency) reflecting the ongoing loose monetary policy from their respective central banks even though, particularly in Sweden, economic growth is currently at 4% annualised. The buoyant economic conditions are feeding into rental growth particularly in Stockholm and Gothenburg and Q1 results across those companies with exposure to these markets was strong.

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