September 2015

By | 16th October 2015

Following the dramatic sell off in equity markets in late August, September was expected to be choppy as investors across the globe awaited the Federal Reserve’s decision on whether to commence a rate rising cycle in the US. Citing the slowdown in China and emerging market volatility as part of the rationale for holding off raising rates, this seemed to spook rather than calm markets resulting in more volatility. Once again, higher yielding companies with secure domestic Developed Market earnings streams proved resilient. The fund’s benchmark, FTSE EPRA/NAREIT Developed Europe Net TR Index (in sterling) rose a satisfactory +1.4% in the month although the volatility meant that it bounced around in a 5% trading range all month. An ongoing feature of returns from the sector has been the outperformance of broader European equities (which have themselves outperformed emerging markets). The EuroStoxx 600 (Net Total Return in euros) fell -4.1% whilst the FTSE All Share Index also fell -2.9% in the month.

Within the sector the most significant corporate news was the announcement of an agreed all paper offer for LEG, Germany’s 3rd largest listed residential landlord by Deutsche Wohnen (the 2nd largest). The deal looks good for LEG shareholders but less so for Deutsche Wohnen and the communication of the deal rationale from its management has been stunningly poor. Whilst the LEG stock rose 10.4% in the month it has subsequently fallen in early October suggesting that there is a risk that not enough Deutsche Wohnen shareholders will vote in favour of the deal. ADO Properties, which had performed poorly since its IPO two months ago rose over 11% post the LEG/ Deutsche Wohnen news as investors expect medium term consolidation to continue in the sector regardless of whether this deal goes through. Elsewhere in Europe residential stocks performed well particularly in Sweden with both Balder (+7%) and Wallenstam (+6.7%) significantly outperforming the rest of their Swedish competitors with the Swedish companies managing just +1.6% (in Swedish krona).

In the UK, Quintain which is being taken private in an agreed cash bid from Lonestar at 131p found itself facing dissent from a 13% activist shareholder and subsequently increased the offer to 141p to the benefit of all holders, ourselves included.

Switzerland, a traditional safe have in turbulent times proved to be anything but safe with the two largest names PSP Swiss and Swiss Prime Site down – 4.3% and -6.1% respectively as investors continue to worry that the economy is moribund and rental values in both Geneva and Zurich continue to drift downwards.

Spain was a stock picking market this month with Merlin up + 3% as investors enjoyed the greater liquidity and size following the 2 for 3 capital raise to fund the Testa acquisition. Meanwhile both Hispania (-7.9%) and Lar Espana (-6.0%) suffered.

The fund’s property assets are externally revalued twice a year and the September interim valuation saw a like for like increase of £6.5m (7.6% increase) to £91.775m. The physical portfolio is now 9% of net assets. This revaluation helped the net asset value rise 2.34% in the month resulting in 94 bps of relative outperformance in September.

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