The markets intense focus on UK shares with overseas earnings has left opportunities for income investors in UK property shares, according to Job Curtis, who runs the £1.6bn City of London investment trust.
The trust has a current yield of 4 per cent and the dividend has increased for 51 consecutive years.
Mr Curtis said a feature of the UK equity market in 2017 has been the determination of investors to buy stocks that earn the greater part of their revenue from overseas in order to capitalise on the weakness of sterling.
Mr Curtis has plenty of exposure to those types of businesses in his fund, with investments in oil giants BP and Shell, and three mining firms, Rio Tinto, BHP Billiton and Anglo American.
He said: “The large capitalisation part of the UK stock market has a spread of multinational companies which are benefiting from global growth. For example, commodity prices, such as for iron and oil, reflect increased demand as economies grow.
"Combined with greater discipline in capital expenditure from companies, this has led to much more favourable operating conditions for mining and oil companies. In the mining sector, Rio Tinto, BHP Billiton and Anglo American have made large dividend increases over the last year.
"In the oil sector, there is greater confidence in the sustainability of the BP and Royal Dutch Shell dividends. BP has recently announced a share buyback and Royal Dutch Shell the return to an all cash dividend.”
The fund manager said UK domestic shares have been severely out of favour with investors as a result of fears about the outlook for the UK economy as a result of the UK leaving the European Union.
But he said this has left some very interesting share price valuations.
For example, he said the two largest Real Estate Investment Trusts, Land Securities and British Land, are trading at discounts to their underlying assets of around 30 per cent.
Their dividend yields of more than 4 per cent are backed by the rental income from high quality tenants on long leases, he added.
Mr Curtis said dividend yields of more than 5 per cent from housebuilders Persimmon and Taylor Wimpey also look interesting given their strong balance sheets and the underlying demand for new houses in the UK.
Another UK equity income investor who is keen on the property sector is Mark Barnett, who runs the £10.5bn Invesco Perpetual High Income fund.
He said the share prices of the largest property companies on the UK stock market imply that the property assets they own are worth less than the value at which they are currently priced in the accounts of those companies, but when the properties are sold, the assets achieve a value higher than that registered in the accounts.
david.thorpe@ft.com
