Managed by Ainslie McLennan and Marcus Langlands Pearse, the investment process and aim of the open-ended fund has remained fairly static.
Mr Langlands Pearse notes: “We’re really driven by the fact it is an open-ended fund and it is daily traded, as property is not the most liquid of assets. Therefore the assets we buy generally have to be very liquid, and that naturally forces us down the more prime end of the property route. So we tend not to buy into big value add projects or the more secondary market.”
The manager says the property unit trust, which measures itself against a peer group of onshore UK property unit trusts rather than the wider IMA Property sector, invests across all sectors – retail, industrial and offices – as well as a growing weighting to alternatives.
Mr Langlands Pearse adds: “If there was anything that defined the fund previously it was that we have been light on retail compared with the benchmark and our peers.
“That has been a call of ours since 2006-07 – we just felt there was a proliferation of retail space across the UK and we didn’t feel it was sustainable and I think that has played out. So what we have done over the course of the past 12 months is begin to rebalance into core retail properties. We have really been chasing core locations and core properties on the retail side, looking at central London and the London villages.”
He says the fund has also increasingly invested in the alternatives sector such as leisure and private rental, with investments in cinemas, hotels and student accommodation.
“These sectors have become much more liquid than they were previously and they have become much more mainstream.
“There are many more buyers so we know there is liquidity in them. In the leisure industry you tend to get longer leases and you can get a better yield than you can in some of the other sectors, so it gives a nice balance to the fund.”
The fund has delivered consistent performance over the medium and longer term, with a five-year return to June 17 of 48.73 per cent compared with the wider IMA Property sector average of 58.74 per cent, while the three-year return of 18.62 per cent puts it ahead of the sector average of 16.56 per cent, according to FE Analytics.
The fund has a core long-term aim to keep its income return, at fund level, above 4 per cent, which perhaps explains the medium risk/reward indicator level of 4 on its key investor information document, while ongoing charges for the fund are 1.7 per cent.
Mr Langlands Pearse notes: “One of the reasons for the alternatives is they tend to throw up a little bit more yield. We focus very carefully on who the tenants are and how long those leases are – we have an average [lease] across the fund of 10 years, and we tend to have nothing but very strong tenants.”
The manager acknowledges the valuations are being driven by what is happening in the market, particularly as there have been large inflows into the sector that have helped push up property prices.
“Another thing that has happened is that people have definitely gone up the risk curve in the past 12 months. You’ve seen overseas investors investing outside of central London, and seen other more traditional property investors starting to invest in more value-added projects and into shorter-leased property, so there has definitely been that graduation.
“We are very aware that we’re an open-ended fund, so we have tended not to invest in the secondary market even though some of the stronger performance has, and will continue to, come out of those secondary properties in the course of this year.”
Expert view
Rob Morgan, pension and investment analyst, Charles Stanley Direct:
Verdict
Managers Ainslie McLennan and Marcus Langlands Pearse tend to focus on keeping the vacancy rate in the portfolio at less than 1 per cent, compared with an average of around 10 per cent for the IPD property index. The flip side of this is there is less risk (and potential reward) from taking on unoccupied buildings and refurbishing them. Geographically, around two-thirds of the fund is invested in the South East, where the commercial property market has been far stronger. It is a good choice for exposure to predominantly prime commercial property.
