Aberdeen is confident that discounts to net asset value of up to 40% in the property shares sec...
Aberdeen is confident that discounts to net asset value of up to 40% in the property shares sector give investors significant downside protection.
Alex Ross, co-manager of the Aberdeen Property Share Unit Trust, believes the sector continues to offer good opportunities. The fund invests in property company shares. Ross is avoiding those with exposure to the City office sector.
'Property has had a good run. We have had a big correction from the high of May 2002,' said Ross. 'But from the quoted property plays, we are seeing some on a discount to net asset value of almost 40%, so you could argue that any correction has been priced in by the stock market.'
Even if commercial property values fall further, Ross argues, this has been fairly well priced into property shares and investors can therefore continue to expect steady returns.
Ross echoes the thoughts of others in the industry by looking towards the retail sector for growth. 'We are most positive on retail, particularly the retail warehousing market. We are seeing an exodus of retailers from the high street,' he said.
There is fairly limited supply in retail warehousing according to Ross, because of planning restrictions and limited space. This is contributing to rising capital values in the sector.
The low UK base rate, which last month was reduced further to 3.75%, means investors are still acquiring property.
'Typical initial yields of 6% are way above interest rates on loans. While interest rates remain low, commercial property is an attractive opportunity,' said Ross. The property message is also helped by the weakness of the main equity market, according to Aberdeen.
The fund's cash holding has been between 5% and 10% for the past six months and is now just over 5%, reflecting Ross's cautious attitude and a desire for liquidity.
It also holds 4.2% in convertibles, issued by Slough Estates, mainly for liquidity reasons.
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