Fund of the Fortnight: Premier Pan European Property Share
The latest: Premier Pan European Property Share fund
We believe that funds focused on only European property shares are currently preferable to those with a global remit since US REITs make up more than 50% of the global index. We consider that US REITs are at risk of a correction as interest rates continue to rise. For the wider real estate market in general, where the US leads the rest of the world follows with the UK responding first and continental Europe lagging behind the UK. The US recovered comparatively quickly after the financial crash in 2007-8, with more immediate write-downs and losses recognised. The UK was dragged painfully through this over the last few years but capital values have now been rising since the summer. Europe should follow shortly. Therefore there are positive reasons for preferring a fund focused on Europe too.
The Premier Pan European Property Share Fund is one such example. The fund aims to provide long term capital growth and a moderate level of income from a diversified portfolio of investments in the shares of UK and Continental European property companies. All non-sterling investments are hedged back to sterling so that investors are only exposed to changes in property share prices, not fluctuations in currency exchange rates.
The current portfolio is made up of: 20% in prime UK REITs; 35% in companies run by proven UK real estate entrepreneurs; and the remainder is in continental Europe of which France and Germany make up 30%.
The fund has been managed since July 2005 by Alex Ross, previously manager of the Aberdeen Property Share Unit Trust. Ross lives and breathes UK and European REITs and other listed property securities so that we don’t have to. This removes the timing and sector decisions that Bestinvest or our clients would otherwise have to take. Ross’s experience running the Aberdeen Property Share Fund means he is aware of the need to limit the size of his fund so that he is easily able to trade in and out of stocks. Therefore the fund size is capped at £150m.
Ross seeks to maximise total returns from the sector. He does this by following a fundamental approach to investing in property and will generally hold stocks for the long term. Ross follows 150 pan European stocks and invests in 80-100 with a maximum held at any one time of around 50 stocks. He runs his own spread sheet models for all his holdings and the underlying buildings that they own so that he can model the effect of changes in rents anywhere in his portfolio. The core of the fund consists of quality blue chip companies.
At stock selection level the primary focus is on quality assets at attractive valuations though the manager will also seek to strategically rotate regional fund exposure to capture local property cycles. The ability to move between sectors and countries is helped by the small size of the fund. All non-sterling investments are hedged back to sterling so that investors are only exposed to changes in property share prices, not fluctuations in currency exchange rates.
Simon Moore is a research team leader at Bestinvest.