Soaring inflation and a lack of income are two of the most pressing concerns among investment managers, and this is reflected in their top choice of property funds.
Among multi-manager and mixed-asset portfolios the most widely-held real assets mandate by some margin – according to Morningstar and factsheet data – sells itself as offering protected income streams. This is the Supermarket Income Reit (SUPR ), which has also seen the strongest three-year performance of the 10 most popular property funds.
The £1.5bn Supermarket Income Reit portfolio has returned a total 41.5% including dividends over that time frame. At 124p, it now sits at a premium of around 11%, which may have influenced the investment company’s announcement last month to seek to raise £175m through a share issue. In the event the offer was heavily over subscribed and the company raised £307m.
Nick Hewson, chair of the real estate investment trust (Reit), emphasised the role supermarket leases can play as a source of ‘secure’ and often inflation-protected income in an uncertain environment. The trust owns 67 companies across the UK, tenanted by major chains such as Sainsbury’s, Waitrose and Tesco.
Hewson said: ‘Currently, 85% of the company’s existing rental income is directly linked to growth in inflation, and historically there has been a high degree of correlation between inflation and food prices, which means that the ability of our grocer tenants to pay the rental income remains sustainable in the long term.’
This thesis has clearly been attractive to fund selectors, with asset managers holding the fund in 15 portfolios. Among them are Abrdn and Jupiter, with the latter’s Monthly Alternative Income fund owning it as its largest holding.
Richard Curling, the manager of the fund, said that he viewed the Reit’s fundraising as ‘slightly opportunistic’ but remained ‘very positive’ on its prospects.
‘The covenant strength of a supermarket is very strong,’ he added. ‘You have got an investment grade covenant there… 15 years of upward-only, inflation-linked rent.’
However, he expressed concern that the fund could lock in lower yields if it deploys new cash quickly. He also said investors should be aware inflation-linked rent increases are typically capped at an average of about 4%.
‘So when inflation is running above 4%, they can only increase rents at 4%. And so therefore they are not keeping up with inflation,’ he said.
Though the specialist Reit dominates the list of most held funds due to its presence in mixed asset and multi-manager portfolios, they are absent from the model portfolio data Citywire has gathered.
Wealth firm factsheets shows relatively few property fund holdings in model portfolios, perhaps due to the risks and complications of holding either investment trusts or property funds in these vehicles. The only two property funds confirmed to be held by more than one wealth manager are both listed equity strategies: the Schroder Global Cities Real Estate and FP Foresight Sustainable Real Estate Securities funds.
The £1.71bn Schroder Global Cities Real Estate strategy is held by Investec and Brewin Dolphin and has also proven popular with investors more broadly, taking inflows of almost £500m over three years. Run by Hugo Machin and Tom Walker, it has returned 27% over the same time frame through its investments in listed property companies around the world.
Investec Wealth head of collectives and fund research Andrew Summers said the fund scores highly in the firm’s selection process due to a ‘compelling’ strategy that emphasises the macro and micro location of its investments.
He said: ‘We think its approach has strong intuitive appeal and efficacy and results in a portfolio of considerable structural growth opportunities. It is further enhanced by a very strong degree of ESG integration.’
The £130m FP Foresight Sustainable Real Estate Securities fund, managed by Mark Brennan, targets an 4% annual income yield through investing in a portfolio of Reits, while explicitly committing to only invest in companies that deliver a net social or environmental benefit. Launched in 2020, it is held by Hawksmoor and King & Shaxson.
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