If you bought £100-worth of shares in Land Securities (LAND) a decade ago and spent the dividends, your capital would be worth just £112. If, instead, you had stashed your cash in TR Property (TRY), an investment trust that owns a basket of property shares, you would now have £205.
- Benefits of a diversified portfolio
- Double-digit discount to book value
- Keeps close watch on debt
- Reliable dividend record
- Could lag benchmark if property revives
- Recent change of manager
There are two lessons. First, it really can pay to diversify. TR Property's largest holding in 2007 was Land Securities. Yet, because it owned shares in plenty of other companies, it weathered the property crash.
Second, liquid portfolios are invaluable in a crisis. When the property market showed signs of turning in late 2007, TR Property's then manager, Chris Turner, could adapt his portfolio quickly. He sold off stocks with higher gearing and used the proceeds to pay off the company's own debt. Land Securities could do little but hope for the best as its portfolio deflated.
Nobody expects a re-run of the 2007-09 property crash any time soon. But in today's polarised property markets - some are booming while most remain distressed - the flexibility of a diversified, liquid portfolio remains attractive. If you want hassle-free, low-risk exposure to European property, TR Property is a useful stock.
TR PROPERTY INVESTMENT TRUST (TRY) | ||||
|---|---|---|---|---|
| ORD PRICE: | 187p | MARKET VALUE: | £594m | |
| TOUCH: | 186-187p | 12-MONTH HIGH: | 187p | LOW: 141p |
| DIVIDEND YIELD: | 3.5% | TRADING ASSETS: | nil | |
| DISCOUNT TO NAV: | see text | |||
| INVESTMENT ASSETS: | £521m | NET DEBT: | 7% | |
| Year to 31 Mar | Net asset value (p) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2008 | 219.6 | 21.55 | 5.79 | 5.60 |
| 2009 | 126.1 | 27.20 | 6.49 | 5.75 |
| 2010 | 185.2 | 21.60 | 5.18 | 5.75 |
| 2011 | 207.1 | 22.50 | 6.94 | 6.00 |
| Jul-05 | 183.6 | 23.66 | 7.07 | 6.60 |
| % change | -11 | +5 | +2 | +10 |
Normal market size: 1,700 Matched bargain trading Beta: 0.9 | ||||
Mr Turner retired in March 2011, to be replaced by his long-term deputy, Marcus Phayre-Mudge. We usually wait for managers to build up substantial track records before recommending their funds, but in this case the continuity of management approach makes us relaxed. In the volatile 22 months since Mr Phayre-Mudge took over, the fund has continued to outperform the European benchmark for property shares.
That outperformance can largely be attributed to a focus on quality - particularly balance sheet quality. Mr Phayre-Mudge has been right, it turns out, to maintain his predecessor's strategy of avoiding companies and countries with high levels of debt. TR Property itself is modestly geared, with net debt of just £36m on a £483m portfolio, and the manager closely monitors 'see through' net debt - the gearing to which the fund is exposed through its holdings. He has also been right to focus on those markets with structural growth, even if the relevant companies trade on punchy ratings. These include London, Stockholm, German housing and pan-regional shopping malls.
Perhaps the biggest risk faced by Mr Phayre-Mudge is that market sentiment improves, so investors turn to cheaper, messier companies. There have been hints of a rotation this year. This could remove the premium rating from safe-haven players such as Derwent (DLN) and Great Portland (GPOR) - both of which are overweight in TR portfolio.
Yet, so far there has been more talk of risk-taking than action. And even if rotation does happen, property values in general should benefit. Besides, investors may not begrudge Mr Phayre-Mudge underperformance of TR's benchmark if he is still making good returns.
