‘Any manager change creates potential uncertainties but is the change such that we want to disinvest straight away? In this case we haven’t because we have followed Gerry Ferguson, and the logic for the acquisition, which is to get exposure to new sectors, is clear.’
Morrell’s 6.3% in the Swip fund forms part of his blended portfolio of unlisted direct bricks and mortar funds with listed property securities. The latter includes real estate investment trusts such as Land Securities and British Land in the UK, with a prime location tilt.
While his exposure to Europe was dramatically diminished during the crisis, Morrell moved back in last year with a 7.6% allocation, but he no longer has exposure to direct property in the region. Similarly, over three years, Morrell has significantly reduced his Asia Pacific exposure.
Over 12 months, the fund has returned 3.62%, according to Lipper. Over three years, the fund is up 17.2% thanks to strong performers including the TR Property Investment trust, the F&C Commercial Property trust and UK direct property funds including his largest holding, the M&G Property Portfolio.
‘We added some exposure because the fund had relatively small amount of cash as a proportion of the total fund and has got the new property authorised investment fund status (Paif) so investors can receive most of the income free of tax.’
In the UK, some of the stocks, in particular West End specialist Great Portland Estates, are trading at a 30% premium, which is a concern, Morrell acknowledges.
‘It is a big premium but also an exception. The F&C Commercial Property trust, in which he holds 2.3%, stands at a 15% premium, but in Asia, the discounts are down to 40% and the US is generally at a slight premium.
‘The relativity of premium to discount is important and the question is how deep a discount needs to be to be sufficiently attractive.
‘We are wary of a 40% discount in Asia, but for the F&C Commercial Property trust, given our view of the market, the fact that it has 27% gearing and that you can buy it with stamp duty land tax, it’s okay. I wouldn’t say it’s extremely attractive, but it’s okay.’
Over a typical cycle, Morrell expects the listed holdings to deliver higher returns but he warns in deteriorating or falling markets, the effects of gearing in many listed companies could have a negative effect.