Standards Life Investments, Edinburgh’s largest fund manager, plans to buy more real estate stocks in the U.S. and Asia and sell some properties in Brazil and Poland to improve the performance of one of its funds.
The firm’s 522 million-pound ($849 million) Select Property Fund, which invests in stocks and buildings, cut the proportion of its money invested in listed companies to 33 percent at the end of July from 44 percent a year earlier, Andrew Jackson, head of wholesale and publicly traded property funds, said by phone.
“We reduced our listed real estate holdings gradually over the last year as the sector rallied,” Jackson said. “In the U.K., most of the good news is now priced in.”
While the fund’s mix of assets is designed to reduce volatility, it risks lagging behind those that invest either in property stocks or the buildings themselves.
The MSCI World Real Estate Index gained 26 percent in the past 12 months as investors turned to property as an alternative to government bonds as a source of income. The total return on offices, retail properties and warehouses for that period was 9.8 percent in local currency terms, as the slowing global economy hurt demand for space, according to Investment Property Databank Ltd., a London-based research firm.
The Standard Life fund ranks first among 19 U.K. mutual funds that invest directly in property over 12 months, and ninth of 16 over three years as of Sept. 24, according to research company Morningstar Inc. It ranks last over one year of 25 funds that invest only in securities and 16th of 23 over three years, Morningstar said.
The fund returned 7 percent over the past 12 months and almost 18 percent over three years, compared with the average one-year return of almost 22 percent and 26 percent over three years for property stock funds, the data show.
The Standard Life Global REIT fund, which only invests in listed real estate stocks and is also managed by Jackson, ranks eighth over one year and 10th over three years against the same group of funds investing in property stocks, Morningstar said.
“We should see that performance continuing,” Jackson said. “We are benefiting from some good calls.”
Warehouses in Poland and the Czech Republic accounted for about 95 million pounds, or more than 18 percent, of the Select Property Fund’s assets at the end of July, its biggest single investment, according to the fund factsheet. It had about 46 million pounds invested in Brazilian offices. The fund is close to completing the sale of some Polish properties, he said.
The plan is to bring the fund back into its long-term 50-50 split between stocks and properties, said Jackson, 43.
The money manager is positive on Hong Kong, Australian and U.S. commercial property, adding to holdings in Henderson Land Development Co., Sun Hung Kai Properties Ltd., New World Development Co. and Swire Properties Ltd. In Australia, he likes Westfield Group, the world’s largest shopping mall operator, as it has half its business in the U.S. and is cheaper to buy than Simon Property Group Inc., the fund’s largest stock holding. Simon, Westfield and Sun Hung Kai were the biggest holdings in the Global REIT fund as at July 31.
“Australian interest rates have come down, which is usually good” for real estate investment trusts, Jackson said.
As well as Simon, the largest U.S. mall owner, the fund is also invested in General Growth Properties Inc., another mall owner, which emerged from bankruptcy in 2010.
Simon has risen 34 percent over the past year. General Growth has fallen 8.6 percent since Sept. 10, when the company rejected proposals by Bill Ackman to put itself up for sale. That’s reduced its gain over the past six months to 14 percent.
The fund now has less than normal invested in stocks in both the U.K. and Europe, Jackson said. In the U.K., Jackson cut holdings in Land Securities Group Plc, British Land Co. and Hammerson Plc, the country’s three largest real estate investment trusts, in the past month.
Elsewhere in Europe, Jackson likes Unibail-Rodamco SA, Europe’s largest REIT, and Klepierre SA, the Paris-based shopping-center landlord 27 percent owned by Simon. He also favors German residential developer Deutsche Wohnen AG and recently bought back into Fabege AB, a Swedish developer.
“We will buy across the piece,” Jackson said. “Some will be in Asia, some in the U.S., which are the markets we are most focused on. We still think there is some good value in these overseas markets.”