What a month. There was a full-scale reversal of October (when our benchmark fell -4.8%), fuelled by the very impressive vaccine news. Markets were keen to look beyond the ongoing repercussions of lockdown and the current restrictions to the sunny uplands of a post-vaccine normalisation. Pan-European real estate equities in sterling rose +12.6%, slightly behind broader European equities (the STOXX 600 index was up +13.9%).
As we would expect, the cohort of stocks most affected by the pandemic (retail and all forms of hospitality) experienced the strongest share-price recovery over the month. In some cases, these were truly extraordinary moves, as investors reversed expectations of the potential for deeply discounted recapitalisations. The poster child was Unibail-Rodamco-Westfield (+70.5%), where the extraordinary general meeting (EGM) to approve a capital raise was rejected by shareholders following an activist intervention. This coincided with the vaccine news forcing short investors to close positions. Other retail stocks performed strongly, led by Carmila (+78%), Klepierre (+70%), Deutsche Euroshop (+61%) and Eurocommercial (+54%). It is important to note that many of these stocks are still trading at 30–50% below their pre-COVID-19 peaks. At the same time, the winners of the last seven months – secure, long income (eg healthcare and residential) and highly valued growth-focused stocks (eg industrial, logistics) all underperformed. Given our focus on these groups since March, it is to be expected that our equity portfolio struggled to keep up. However, we swiftly rearranged elements of the portfolio and the fund returned +12.1%, underperforming the benchmark by 51 basis points (bps) over the month.
This rotation is set to continue, although we are aware that markets can overreact in the immediacy of the news announcements. The roll-out of these vaccines is a mammoth logistical exercise which will run into the second half of 2021. We expect some of the high-value / high-growth stocks focused on the logistics and industrial markets to travel sideways for a while, but in the medium term, the sound fundamentals will reassert themselves as the key driver of valuation. In the meantime, we may well continue to see the deeply discounted value stocks continue their rehabilitation. In the UK, we saw Hammerson rally 34% but the stock is still down -79% in the year to date after the complete recapitalisation over the summer. German residential benefits from secure, inflation-linked income but at moments when the market wants to buy ‘cheap’ value stocks, this group tends to underperform, as we saw in November. Vonovia, the largest listed property company, returned just +4.9% in November, one of the worst performers in the month.
The Trust published its interim results for six months to 30 September and the Board declared an interim dividend of 5.2p (HY2019: 5.2p). The Chairman highlighted that some of the revenue reserves may be utilised to support the final dividend as earnings for the full year will be below the previous year due to the cancellation of dividends in the period. It is very encouraging to see that almost all non-retail focused companies announced dividend reinstatements, although in some cases at reduced levels compared to prior periods. The current dividend yield on the Trust is 3.6%, based on the 30 November share price.
Discrete rolling annual performance as at 30.11.2020 (%):
Past performance should not be seen as an indication of future performance