May was a strong month for pan-European real estate equities when viewed in sterling, with returns of 2.44%. The picture in euros was very different, however, with a negative performance of -0.38%. Essentially, both sterling and UK property companies were poor performers over the month. Sterling fell -2.7% against the euro and UK property companies were down -3.1%, driven by poor performance from major stocks; both Landsec and British Land fell more than 10% on the back of anaemic results for the 2019 financial year. There was also ongoing weakness in retail companies, both large and small. Even though Hammerson managed to fall -15.8%, it was not the worst retail performer, as Capital & Regional was down by -22.4%. With a high loan-to-value ratio, the collapse in the share price becomes self-fulfilling – an ‘equity cure’ is no longer an option, given the gulf between the net asset value (NAV) and the share price. The weakness in sterling reflects the ongoing political saga as the Conservative Party meanders through its convoluted hustings process as it elects a new leader and prime minister. The expected shortlist are all fervent Brexiteers and the range of outcomes must now include a greater risk of a no-deal Brexit at the end of October. The strongest performers in the UK were those with the greatest security of income, such as Assura which rose 7.6%. It owns primary health properties with leases underpinned by income from the NHS.

Pan-European real estate equities drifted sideways in April, returning a slightly weak -1.2% over the month. This stood in stark contrast to the strong performance in March (+4.8%), which took the first quarter’s total return to 9%. The Trust’s net asset value (NAV) fell less than the benchmark, at -0.36%, leading to 84 basis points (bps) of relative outperformance. The share price was even stronger, returning +1.6% in the first month of the new financial year.

Pan European real estate equities enjoyed a strong performance in March with the benchmark index rising 4.8% which more than compensated for the weakness in February. Adding in the strength in January the sector enjoyed a Q1 total return of 9%, its fastest quarterly growth since Q1, 2015. The Trust also enjoyed a strong performance returning 5.4% in March and this brought the full year total return to 9.1% versus the benchmark of 5.6% and relative outperformance, net of fees, of 344bps for the year. The share price total return was 6.2% over the 12 months.

After the stunning rally in January during which the benchmark rose 7.2%, February saw a steady reversal of the start-of-year euphoria. The benchmark corrected by -3.0% and managed only seven positive trading days in the month. However, much of this downward movement evaporates when you look at stock performance in local-currency terms. When viewed in euros, the benchmark fell just -1.2%. Sterling strengthened +1.8% during the month, bringing the year-to-date figure for sterling/euro to +4.8%. Currency markets appear to be pricing in a reduced risk of a ‘no deal’ or hard Brexit. As a reminder, the Trust’s currency exposure is managed in line with that of the benchmark by using forward contracts. This means that the manager’s stock-selection process is not driven by expectations of currency movements. The process also ensures consistency in the currency exposure, regardless of the underlying stock positioning. The net asset value (NAV) fell -2.3% over the month, delivering +76bps of relative outperformance. The share-price correction was even more modest, at -1.6%.