Many of the traditional income sectors on the market are expensive but there are opportunities among small cap property companies, according to Chris White, who runs the £243m Premier Monthly Income fund.
Mr White, whose fund has a yield of just over 4 per cent, said while many of the traditional areas for UK income investors, such as consumer staples, utilities and pharmaceuticals now look expensive there are opportunities further down the market cap scale.
The fund manager has recently bought shares in several real estate investment trusts (Reits).
He said: “We like the theme of industrial property and have recently bought holdings of Pacific Industrial, Logistics Reit and Warehouse Reit.”
The fund manager said demand from logistics companies is likely to mean rental income growth for those companies that can translate into capital growth for the trusts.
He is not alone among his peers in the income sector in seeing value in the smaller property companies, with Mark Barnett, who runs the £5bn Invesco Perpetual Income fund, and Job Curtis, who runs the £1.5bn City of London investment trust, also recently dipping into the property sector for returns.
Alex Short, who runs the who runs the AEW investment trust, a direct property fund, said she is avoiding any exposure to London office property on valuation grounds and is instead buying industrial sites around the country.
Mr White said he recently bought shares in Strix, a maker of an implement that is used in kettles.
The business came to the stock market earlier this year and has a yield of 7 per cent.
The large cap shares he prefers include banks, which he thinks will benefit from higher inflation, and life assurance companies.
Jonathan Davis, who runs Jonathan Davis Wealth Management in Hertford, is skeptical of the investment case for property.
He said a common perception among market participants is that rising inflation is good for property but this only applies if lending is also rising, which he doesn’t think will be the case in the UK as mortgage borrowing rates will also increase.
david.thorpe@ft.com
