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Top 100 Funds 2020: Property

Our suggestions for exposure to commercial property
Top 100 Funds 2020: Property

Commercial property has been a useful asset for diversifying away from equities and as a source of income. Although there are concerns about what effects the coronavirus pandemic and UK’s departure from the European Union will have on certain areas of UK commercial property such as offices, a good actively managed fund should be able to allocate away from areas that could be negatively affected. And some funds take a focus on areas that should be in demand regardless of the economic backdrop, such as social housing.

 

NEW ENTRANT: Civitas Social Housing (CSH)

Specialist trusts have generally been the best way to get property exposure this year, because they focus on growth trends that have been broadly unaffected by the coronavirus crisis. Civitas Social Housing is an example of this.

The trust runs a portfolio of specialist social housing investments, which may appeal both in terms of its social impact and returns. Properties in its portfolio enable vulnerable individuals to live within a community rather than in an institution, and provide a stable and rising income for the trust’s shareholders. Because the portfolio involves lease agreements with the likes of housing associations and local authorities, the trust’s income effectively has a level of government backing, which makes it more resilient.

Like other specialist property trusts, at the end of August it was not cheap – the trust’s shares were trading at a modest premium to the value of underlying assets. But investors are buying a source of income that looks unlikely to be disrupted.

 

TR Property Investment Trust (TRY)

TR Property Investment Trust differs from other property investment trusts because it mainly invests in the shares of property companies rather than buying physical buildings. The trust had around three-quarters of its assets in European property company shares at the end of July, a third in UK property company shares and 7.6 per cent in UK direct property. These exposures add up to more than 100 per cent because of the trust’s use of debt.

The trust’s approach may well appeal to investors: at a time of great uncertainty around commercial property, its managers should find it easier to adjust the portfolio to changing circumstances by buying and selling holdings.

TR Property Investment Trust has exposure to some sectors that should continue to prove more resilient in the wake of the Covid-19 outbreak, such as healthcare, residential property and logistics. One of its largest holdings at the end of July was Argan (ARG:PAR), a logistics owner and developer. The trust, which has a historic yield of around 4 per cent, has also been focusing on companies with stronger income prospects.

 

Standard Life Investments Property Income Trust (SLI)

Like BMO Commercial Property Trust (see below), this trust’s shares fell by around 40 per cent over the first eight months of 2020 as investors worried about the effects of the coronavirus crisis on its holdings. But while not immune to the problems facing this asset class, Standard Life Investments Property Income Trust seems less exposed to the most troubled sectors than some of its peers.

The trust had around a fifth of its assets in offices in London and the south-east of England at the end of March, but 43 per cent were in industrials which seem to have been more resilient.

Uncertainty in the property space could mean this trust’s shares behave in a volatile manner for some time, but investors wishing to take a shot on a diversified commercial property vehicle may find this more resilient than some others.

 

Tritax Big Box REIT (BBOX)

Logistics funds have tended to do well during the coronavirus crisis this year and Tritax Big Box REIT has been no exception. The trust lets or pre-lets logistics warehouses to a variety of companies and it has made a share price total return of around 8 per cent over the first eight months of this year, with rent collection from within the portfolio proving extremely robust amid the pandemic.

Logistics names stand out in part because they can benefit from trends such as the shift to e-commerce, and Tritax Big Box REIT, which deals with Amazon (US:AMZN) among others, fits this category. The trust targets a net total return of 9 per cent a year over the medium term, and its shares traded on a dividend yield of 4.5 per cent at the end of August.

However, the shares have recently tended to trade on a premium leaving them exposed if this subsector falls out of favour. 

 

Fund/benchmark1-year total return (%)3-year cumulative total return (%)5-year cumulative total return (%)Ongoing charge plus any performance fee (%)
Tritax Big Box REIT share price6.8 34.2 65.7 0.85*
Civitas Social Housing share price5.8 17.7 NA1.46*
Standard Life Investments Property Income Trust share price(7.2)11.3 34.3 1.96*
TR Property Investment Trust share price(4.2)12.4 49.8 0.87*
FTSE EPRA Nareit Developed Europe index(8.1)1.4 33.7  

Source: Morningstar, *AIC.                    

Performance data as at 31 August 2020.                    

**Data shown is for a different share class to the one indicated in the text

 

For all our selections across various sectors, see below:

Bonds (12 funds)

Wealth preservation (7 funds)

Global equity income (4 funds)

Overseas equity income (6 funds)

UK equity income (8 funds)

Global growth (9 funds)

UK equity growth (8 funds)

North America (4 funds)

Europe (6 funds)

Japan (5 funds)

Asia ex-Japan (6 funds)

Emerging markets (6 funds)

Specialist equity funds (9 funds)

Alternative assets (6 funds)

Property (4 funds)