By Annabel Brodie-Smith
July has started with a heatwave after abundant sunshine last month. It’s helped my lavender flourish and the barn is currently surrounded by golden fields. It’s all very beautiful and reminiscent of Van Gogh’s Wheat Field with Cypresses.
We have exciting news – the AIC’s Investment Company Showcase is back on October 10 at 133 Houndsditch near Liverpool Street station – you can also attend online.
We have exciting news – the AIC’s Investment Company Showcase is back on October 10 at 133 Houndsditch near Liverpool Street station – you can also attend online. We have over 30 investment trust managers speaking including our keynote speaker, Nick Train who manages Finsbury Growth & Income. Managers are coming from the US, Singapore and Vietnam and are covering a wide range of themes from Trumponomics and UK smaller companies to high income trusts and what’s next for private equity. And it’s free to register with the special discount code for Compass readers, COMP1. We look forward to seeing you there.
Despite the market turmoil caused by Trump's tariffs, investment trusts have performed well in the first six months of the year, delivering a return of 7%.
Despite the market turmoil caused by Trump's tariffs, investment trusts have performed well in the first six months of the year, delivering a return of 7%. If you read last month’s Compass, you shouldn’t be surprised that the European Smaller Companies sector is the top performing sector up 24% and the Europe sector is the third best performing sector returning 17% over six months. As the European managers explained last month, investors have reallocated away from the US into the European investment trust sectors. In addition, investment trusts investing in the UK, China, Japan and Emerging Markets have also been beneficiaries of this tilt away from the US.
The UK commercial property sector is the second best performing sector this year, returning 18%. This has bounced back due to interest rates starting to come down, strong rental growth and an increase in M&A activity. More to come on property shortly. We all know it’s useful to look at this year’s short-term winners, but it’s important to remember that investment is all about the long term. Investors need to build a well balanced portfolio of investments which meets their needs over time. Do take a look at our release to find out more about the best performing sectors and trusts in the first half of the year.
And talking about performance, Ian Cowie’s humble piece on why fantasy fund manager is not his forte is essential reading. Ian explains why three of his four fantasy fund selections have become “Cowie’s Clangers - or shares whose price fell by more than 10%. Ouch!” But Ian goes on to tell us that this experience illustrates three important lessons to diminish the risks inherent in stock markets.
The first important lesson is that this experience demonstrates “the value of diversification to diminish risk.” In real life Ian has put this into practice by investing his life savings across 50 funds and shares. The second lesson is that short-term speculation is much riskier than medium to long-term investment. Anything might happen to share prices on a six-month view but the Barclays Equity Gilt Study shows that shares tend to beat cash deposits in three quarters of five year terms since 1899.
And the final lesson is that share prices can fall without any warning so before investing it’s a good idea to consider how you will feel when this happens. Ian explains: “This should reduce the risk of doing something silly, like selling after prices have fallen, and increase the probability that we will hang on for long-term returns.”
And coming back to property, it’s been a busy time for M&A in the property sectors with Tritax Big Box REIT gazumping US giant Blackstone with a £485 million offer for Warehouse REIT last week. This type of corporate activity is just one way that investors can benefit from the property revival. So we asked UK property managers for their thoughts on the opportunities presented by commercial property and real estate investment trusts (REITs).
Laura Elkin, Portfolio Manager of AEW UK REIT, said: “We feel that now is a very good time to invest in diversified UK REITs as average UK commercial property values are at their lowest level since 2015. Whilst Kenneth MacKenzie, CEO of Target Healthcare REIT highlights the wide discounts: “Many are trading at significant discounts to their net asset value, offering investors the chance to acquire real estate below its true value. This gap reflects past market headwinds, including high interest rates and sector-specific pressures.”
“…commercial property returned to growth in the summer of 2024, growth which has persisted over the last 12 months. This growth has not been driven by yield compression (capital growth), but by underlying rental growth. With further rental growth to come, the window of opportunity to invest in UK REITs at an opportune time remains wide open for investors.”
Managers are unanimous that the environment for property is improving. Richard Shepherd-Cross, Investment Manager of Custodian Property Income REIT, said: “…commercial property returned to growth in the summer of 2024, growth which has persisted over the last 12 months. This growth has not been driven by yield compression (capital growth), but by underlying rental growth. With further rental growth to come, the window of opportunity to invest in UK REITs at an opportune time remains wide open for investors.”
And when asked what will drive returns, Marcus Phayre-Mudge, Fund Manager of TR Property Investment Trust, said: “It’s a bit of a cocktail. Falling or stabilised interest rates are helping open up bond markets again, rents are growing, particularly in prime sectors where there’s a fundamental shortage of space – logistics, centrally located offices, quality retail…. But really, it all comes back to that rather boring but essential equation: supply and demand. If you own the right kit in the right place, you’ll do well.”
Compass will be going on its summer holiday in August but we’ll be back in September.
The exams are all over – big relief and the boys are living their best lives - off on trips to Prague and interrailing – lucky them. I have two weeks off to wander around the fields of Oxfordshire with Sherlock the dog and hopefully it will be warm enough for swimming in the Thames. Bring it on!
Wishing you all a happy and relaxing summer.
Annabel Brodie-SmithCommunications Director, AIC
