October 2011

By | 15th November 2011

Yet another month driven by macro forces. At least for these four weeks it was back to ‘risk-on’. Markets took heart from the concerted effort by Europe’s political leadership to at least agree on firm policy actions surrounding further bailout of Greece, strengthening and expanding the EFSF and potentially forcing recapitalisations of some banks. The emphasis is on ‘agree policy actions’. None of the suggestions have been put in place as yet, many of them require ratification from all 17 member states. The structure of the monetary union does not allow rapid decision making and the summit on 27 October was therefore seen as a critical opportunity. In the week leading up to the summit, the Euro Stoxx 600 Index was up 7% as investors hoped for firm action. It fell 5.6% in the following 3 days. Response to macro events still dominates and this is difficult territory for our fundamental bottom up approach.

Real estate stocks slightly underperformed the broad market rising +6.3% (versus 7% for the EuroStoxx Index and 7.8% for the FTSE All-Share Index). The Ordinary share class NAV rose 7.1% outperforming the index by 80 bps. At the country level, the Fund’s overweight positions in UK, France, Germany and Sweden were all beneficial whilst the significant underweight to Switzerland also aided relative performance. The pattern of Swiss stocks underperforming in a rising market remained intact in October with the five Swiss companies in the index falling -1.2% in local currency terms as investors bought back into euro denominated stocks that had sold off in August and September. At the stock level, the Fund’s performance was aided by overweight positions in a number of companies which rebounded well. Beni Stabili (+ 10.3%) Italy’s largest listed property company, recovered strongly. It had lost 43% of its value in Q3 as bears focused on Italy’s deficit. In Germany GSW (+10.8%) and DIC Asset (+15.5%) also helped performance. Whilst we believe DIC has too much leverage, we are confident that the office markets in Hamburg, Frankfurt and Munich will continue to benefit from being in the strongest regions within Europe’s strongest economy. In the UK, those with London based portfolios did well, Workspace (+11.8%), Great Portland (+9.5%), Shaftesbury (+8.2%) and Derwent London (+17.9%) as investors focused again on sub-markets with rental growth. The Fund has an overweight position in all these stocks. With our underweight positions in Belgium (high yielding stocks) and Switzerland, the portfolio has reduced exposure to the most defensive names in the sector.

Interim results and notification of the interim dividend will be announced by the Board on 23 November.

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