The portfolio is managed using Aberdeen’s equity investment process. Mr Fox explains: “We will never invest in a company whose management we haven’t met and the weight of each holding is determined by our view on its risk and return profile, not the benchmark. Stock selection includes an evaluation of the properties held, the experience and incentives in place for the management teams, and the risks they undertake – such as financial leverage and development exposure.”
The majority of holdings in the fund are drawn from the UK listed property sector but the team does have the flexibility to invest some of the portfolio in other sectors and countries.
Mr Fox acknowledges that while economic conditions can significantly affect holdings, the team does not try to add value by forecasting macroeconomic factors. Instead, he says: “We place an emphasis on those companies and management teams that have successfully managed previous cyclical downturns and which we expect to perform well over the economic cycle.”
So, have there been any changes to the portfolio recently? He reveals: “Our strategic focus has been to allocate capital away from strong-performing holdings exposed to the more cyclical residential, prime property and London office markets. We achieved this by finding new holdings in sub-sectors of the market less affected by yield-compression, and offering attractive returns.”
| EXPERT VIEW - Chris Mayo, investment director, Wellian Investment Solutions |
| The Aberdeen Property Share fund, which is managed by the pan-European equity team, seeks to invest predominantly in UK-listed property companies, although it can also invest in overseas companies. The fund is currently invested with 76 per cent in the UK and 20 per cent in Europe, across 30 holdings. As you might expect within a sector that also includes bricks-and-mortar funds, this fund has shown a high level of performance, particularly within the context of property share funds, with a high level of volatility, although this hasn’t been reflected in delivering high levels of alpha. |
Holdings added to the portfolio on that basis include healthcare property owner Assura, student accommodation provider Unite Group and industrial-logistics owner LondonMetric. But this strategy has also seen the portfolio sell out of several holdings.
“[We exited] housebuilders Berkeley Group, Persimmon and Bellway following strong share price performances and full valuations,” he notes. “We still source new holdings: Irish housebuilder Cairn Homes and UK marketing portal Rightmove, for instance, were both introduced this year.”
The fund sits towards the riskier end of the risk-reward scale at level five, according to the key investor information document, while ongoing charges of 0.86 per cent apply to the clean I accumulation share class.
The fund’s strategy shift has paid off, according to Mr Fox, who observes favouring emerging sub-property sectors has aided performance. Data from FE Analytics shows the fund’s performance has lagged the IA Property sector over the past 12 months to June 7, delivering 0.8 per cent, compared to the sector average of 5.7 per cent, but beating the FTSE 350 Real Estate Investment & Services index, which is down 10 per cent. Over five years to June 7, the fund has outperformed both its benchmark and peer group, having generated returns of 78.1 per cent for investors, while the index was up 74.9 per cent and the sector averaged 35.9 per cent.
Mr Fox says: “Absolute returns in 2007 and 2008 from listed property companies were hit by the economic crisis, but investors have received a dividend income allied with a recovery in property values and a narrowing in share price discounts to net asset value since the 2008 crisis.”
Top performers in the portfolio over the past five years were Persimmon, Bellway and Berkeley Group, but Mr Fox also notes performance was helped by avoiding weaker names such as Intu Properties and “volatile estate agencies” Foxtons and Countrywide.
He concedes: “Over five years, relative performance has been poorer from our UK property developer holdings such as St Modwen and U&I. In addition, not all of our off-benchmark investments were in our favour – a holding in hotel owner Millennium & Copthorne lagged due to concerns over a slowdown in hotel demand, while our decision to invest in Tesco proved painful when the business bore the brunt of significant competition as well as internal management issues.”
