PropertyJun 20 2016

Fund Review: Henderson Horizon Pan European Property Equities

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by

This €497m (£395m) fund was launched in July 1998 as a Luxembourg Sicav and is a member of the 2015 Investment Adviser 100 Club. Managed by Guy Barnard, the vehicle seeks long-term capital appreciation by investing at least 75 per cent of its total assets in the quoted equity securities of companies or real estate investment trusts that are registered in the European Economic Area and listed or traded on a market, and which derive the main part of their revenue from the ownership, management and/or development of real estate in Europe.

Mr Barnard explains: “We believe listed real estate securities offer investors a diversified, liquid and low-cost way of accessing commercial property investment. Property and property equities offer bond-like characteristics in the form of generally long-dated secure rental income streams, with the potential for equity-like growth given the expectation that real estate capital values at least match longer-term inflation. In addition, data shows that real estate and real estate equities generally improve the efficient frontier for investors when added to a balanced portfolio, providing a higher level of return for a lower level of risk.”

The manager notes the fund’s investment process focuses on bottom-up stock selection, “utilising the expert local market knowledge of investment managers in the region”.

He adds: “Top-down views of economies, equity markets, property markets and sectors can also be applied but within clearly defined risk limits. We believe our investment approach, using a disciplined investment process with an objective of consistent outperformance over benchmark indices, will be successful over the long term. The primary consideration is bottom-up knowledge of markets, portfolios and people. We build concentrated portfolios, selecting stocks from defined peer groups, using scoring systems designed to identify relative value. The process is based on thorough research, which, combined with our proprietary investment valuation framework, allows us to pinpoint those companies that [the team] believes will outperform.”

EXPERT VIEW - Chris Mayo, investment director, Wellian Investment Solutions
The Henderson Horizon Pan European Property Equities fund seeks to invest at least 75 per cent of its assets in property companies listed in Europe. The vehicle is invested 62 per cent in Europe, with Germany, France and the Netherlands as the biggest regions, while 36 per cent is invested in the UK. The fund has performed very strongly within its European Property sector, although volatility has also been high among its peers. The portfolio is listed offshore and is priced in euros rather than sterling, so UK investors might want to consider this before investing.

Mr Barnard points out the team is continually evaluating the process and the parameters used in the relative value scorecard. Although this hasn’t changed in recent years, he adds the importance of liquidity “has been something that the team has emphasised following the financial crisis and is now explicitly included as one of the criteria used to evaluate relative value”.

The fund’s H2-accumulation euro share class sits at a risk-reward level of six out of seven, with an ongoing charge of 1.29 per cent, its key investor information document shows.

In the five years to June 9 2016 the fund’s H2 euro-hedged share class has delivered 75.7 per cent, outperforming both the FTSE Epra/Nareit Developed Europe index’s gain of 60 per cent and the IA Property sector average of 36.5 per cent, data from FE Analytics shows. The fund has also outperformed the index and the sector across one- and three-year periods, while its 10-year performance of 59 per cent is more than double the peer group average return of 26.8 per cent.

In terms of recent changes, the manager notes the team has “significantly reduced exposure to the UK in the past year”. He explains: “This was a reflection of higher valuations and our expectations of slower growth from UK commercial property this year and in coming years following several years of strong performance. We have increasingly focused on structural growth within the UK property market, rather than cyclical areas. This includes self-storage, student accommodation and residential land outside of London.

“We used the proceeds for further European investments, specifically in Germany and Spain, where we see potential for further yield compression in the current low [interest] rate environment and also expect rental growth.”

The manager emphasises the role stock selection has played in the performance of the fund, highlighting holdings in France, Germany and Spain as key contributors for the year to May 31. But he adds: “Asset allocation detracted mainly as a result of an overweight position in the UK, which underperformed on Brexit concerns and sterling weakness. An underweight position in the perceived defensive markets of Switzerland and Belgium also had a negative impact.”