The F&C Property Growth and Income fund has been relying on its physical property holdings to weather the volatility playing out in 2016, as performance year-to-date remains flat.
Despite the £195m fund using the last market rout in August 2015 to stock up on property equities, George Gay, who co-manages the fund alongside Marcus Phayre-Mudge and Alban Lhonneur, said it was the “hybrid” nature of the fund that had protected it from a drop in 2016.
It entered the August period holding 60 per cent in property equities, but has since topped that up to 65.7 per cent.
The fund thus reduced its holdings in UK physical property, now at 33.2 per cent, down on its average of 40 per cent.
Mr Gay has not added to physical holdings since then, but said: “In times of volatility, property prices tend to fluctuate less than those of equities.
“Returns from property normally also have a low correlation with those from equities and fixed income assets.”
So far this year, the fund has shed 0.2 per cent, although it has outperformed both real estate equities and the wider market.
The fund’s weighting has averaged 60 per cent equities and 40 per cent physical property since it launched in 2005.
“Although both ultimately involve the fractional ownership of underlying property assets, there are some real differences between direct and indirect property,” Mr Gay said.
The fund invests in a mix of UK physical commercial property and pan-European real estate equities, aiming to produce a covered dividend yield and capital growth, but with a lower volatility than a purely equity-based fund.
Continental European shares take up the largest proportion of the fund at 52.4 per cent, led primarily by investments in France, Germany and Sweden. UK direct property takes up 33.2 per cent of the fund, while 12.3 per cent is allocated to UK shares.
The manager’s equity preferences centre mainly on European retailers. Two of the three largest equity holdings are in European shopping centre developers, Unibail-Rodamco and Klepierre, with 7.5 per cent and 4.9 per cent respectively.
A 6.8 per cent investment in German residential property developer Vonovia is another large equity holding.
However, in the physical space, the fund does not focus on retail names.
It only buys in the UK, and its holdings are split between office and industrial property.
According to FE Analytics, the F&C Property Growth and Income fund lost 0.3 per cent over the past year, behind a weighted-average return of 4.4 per cent from the IPD UK All Property and FTSE Developed Europe ex-UK indices. Over three years, the fund returned 40.9 per cent compared with 32.2 per cent from the indices.
