Top 50 Funds 2021: 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 the UK’s departure from the EU will have on areas of UK commercial property such as offices, a good actively managed fund should be able to allocate away from areas that are negatively affected. 

TR Property Investment Trust (TRY)

This trust differs from most property funds because it predominantly holds shares in property companies rather than directly investing in buildings. This should give its managers a level of flexibility when it comes to making asset allocation changes as listed equities tend to be much easier to buy and sell than buildings.

TR Property Investment Trust mainly holds Europe-listed property shares, with some big bets on its largest holdings. For example, Vonovia (GER:VNA) made up more than a tenth of the trust's assets at the end of July.

The trust made a good share price total return of 42 per cent over the 12 months to 31 August. This puts it ahead of many UK commercial property trusts even though they have also rebounded over this period.

If investors with an appetite for risk are tempted to play any further recovery, they should note that there were other potential bargains at time of writing. TR Property Investment Trust traded on a 1.6 per cent discount to net asset value (NAV) on 31 August, a much more expensive entry point than its 12-month average discount of 6 per cent.

By contrast, names such as UK physical property fund BMO Commercial Property Trust (BCPT) continue to trade on big discounts to NAV – even after huge share price gains in the past year. Brave investors may wish to bank on further recovery with an investment in BMO Commercial Property Trust, although it is heavily exposed to offices and retail outlets and the uncertainty this brings.

Standard Life Investments Property Income Trust (SLI)

If BMO Commercial Property Trust looks too exposed to the uncertainties of a post-pandemic property sector, Standard Life Investments Property Income Trust might be an interesting compromise for investors keen to tap into a recovery for the asset class. It made a share price total return of 43 per cent over the 12 months to 31 August, but still recently traded at a discount to NAV of 14.3 per cent, also offering a dividend yield of 5.1 per cent. Importantly, this trust is much less heavily exposed to office and retail space than BMO Commercial Property Trust and has a greater focus on industrial assets.

Tritax Big Box REIT (BBOX)

This trust’s shares continued a strong run over the past year, reflecting buoyant demand for the logistics facilities it lets or pre-lets. Like many other specialist property trusts it focuses on a lucrative trend, in this case indirectly tapping into the boom in online shopping by letting facilities to online retailers. For example, Amazon (US:AMZN) was the trust’s biggest customer at the end of June, representing 19.2 per cent of its contracted rent roll.

With its strong fundamentals, Tritax Big Box REIT continues to stand out. But as we noted last year, exposure does not come cheap, with its shares trading at an eye-watering 23 per cent premium to NAV. This leaves it exposed to potential falls if its sub-sector goes out of favour.

Similarly, the trust's dividend yield of 2.7 per cent on 31 August has notably fallen from the 4.5 per cent it was at when we last updated our top funds list towards the end of summer 2020.