plans to increase trust's continental european holdings from 14% to around 30% and adopt SSSB european property index as benchmark
The TR Property Investment Trust is widening its equity portfolio onto a more pan-European basis, after its decision to adopt the SchroderSolomonSmithBarney European Property Index as its benchmark.
The spread of the benchmark index is currently 54% UK and 46% Continental Europe.
As at the end of September the trust held 14% of its assets in Continental European property shares.
William Cochrane, chairman of the trust, said that this is now likely to expand to around 30% by next March.
Cochrane said: 'Broadening the benchmark is adding diversity to the portfolio and reducing the weighting to London, a city whose property values are probably more closely linked to the health of the financial and tech, media and telecom sectors than those of most continental cities.'
Chris Turner, fund manager, said that the trust has become more cautious as the year progressed, particularly in relation to the London property market.
He added: 'Accordingly, we have deliberately reduced our holdings in shares with heavy London office portfolio weightings and, in line with the new pan-European benchmark, reinvested the proceeds in Continental European property equities. While re-weighting the portfolio we have also been trying to reduce the inherent gearing and to improve the liquidity and the portfolio's potential dividend income stream.'
To do this, Turner said he has been gradually reducing holdings in some of the smaller highly geared equity investments and buying the shares of larger companies with lower gearing. By doing this, he said, he hopes it will protect the NAV of TR Property in any setback, while at the same time the increased liquidity in the shareholdings should allow them to manoeuvre the portfolio more easily when the economic outlook becomes clearer.
Cochrane said the prospects of property as an asset class have been strengthened by the continued fall in both short and medium-term interest rates.
He added: 'In the UK, institutional investor demand for commercial property has declined but there is no great selling pressure and non-institutional investors remain active in the market.
'Tenant demand across Europe is not as strong as it was earlier in the year, particularly from new economy businesses, but vacancy rates are low and speculative development pipelines are small. Meanwhile in the retail market consumer expenditure remains extraordinarily resilient across Europe.'
In the six months to 30 September 2001, the trust's fully diluted NAV fell by 7.8% while the FTSE Real Estate Index fell by 10.4%. The NAV total return was -6.2% compared with a total return from the index of -8.8%.
Looking forward, Turner said: 'European property shares have outperformed by some 60% over the past 18 months. If general equity prices are now poised for a sharp recovery, property shares may lose some of this outperformance. However we believe that the sector's reliability over the past 18 months will have helped prove that, looking ahead, any sensibly diversified investment portfolio should not fail to have some representation in property or property shares.'
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