The Tip Sheet

The Telegraph reveals its top pick among London’s generalist listed property funds, while This is Money notes that The European Smaller Cos Trust is ‘underpinned by rather good performance numbers’.

ByFrank Buhagiar

Questor: This fund is our pick of the property Reits

With so many London-listed property REITs to choose from wouldn’t it be handy if a national tipster came out with its top pick in the sector? Enter The Telegraph’s Questor, although the Column does make the reader wait for 15 paragraphs before the big reveal. For the record, the preceding 15 paragraphs run through how shares in generalist listed property funds trade at over 25% discounts to net assets and that these ‘abnormally wide discounts present a good opportunity with real estate recovering after a two-year slump’ – the commercial property market is showing signs of stabilising and encouragingly, rents are growing, most notably in the logistics sector.

As for which is Questor’s top pick, three funds stand out based on the latest round of financial results from the sector. First, there’s Custodian Property Income Reit. Questor thinks the 21% discount ‘looks great value for a diversified £412m portfolio of smaller properties outside London that is 40pc invested in industrials and 23pc in retail warehouses.’ What’s more, with the shares trading on an 8.4% prospective yield, shareholders are effectively being paid to wait for a recovery.

Next up, Schroder Real Estate on a 7.8% yield. According to Questor, ‘On a 23pc discount the shares look attractive, particularly with a 61.5pc exposure to industrial estates and retail warehouses.’ Although the article does points out that asset sales are required to lower the company’s debt levels which currently stand at 37% of assets.

Making up the top three, Picton Property Income. Like the Schroder fund, its £525m portfolio has a large weighting to industrials (59%). A further 7% is in retail warehouses and 30% in offices. But, ‘despite beating its commercial property benchmark for 11 years in a row, with 153pc growth in net asset value over 10 years, the shares languish on a 30pc discount.’ Compared to the previous two funds, Picton’s yield (5.5%) is lower, but growth prospects are higher thanks to having an estimated rental value 29pc above current rents’. Because of this, ‘While Custodian and Schroders may attract income seekers, we believe Picton could generate higher total returns.’ Guess that makes it the Picton of the crop.

This is Money THE EUROPEAN SMALLER COMPANIES TRUST: Fund that runs with the winners in global markets

The European Smallers Companies Trust’s turn under the This is Money spotlight. And it’s easy to see why. That’s because the fund ‘is underpinned by rather good performance numbers’. Over one year, the fund is up 23%. Over five years, the gain stands at 95%. ‘Trusts with a similar investment mandate have somewhat trailed in its wake.’

A big reason behind the strong numbers is the £739 million fund’s focus on investing in undervalued companies that are global businesses as opposed to being European-centric. So, even though many European countries are faced with economic and political uncertainty, businesses across the continent are still able to flourish.

Fund manager Ollie Beckett also cites the trust’s diversified portfolio – there are currently 131 holdings with the biggest position only accounting for 3.1% of the trust’s assets. As Beckett explains ‘In the smaller companies’ space, diversity pays – not high conviction investing. As an investment manager, you are going to get around 44 per cent of your stock picks wrong.’ Important then to squeeze as much as possible out of the 56% that are the winners ‘The key is to gain confidence in these winners, build positions and run with them. That way, you make profits for your shareholders.’