Ian Cowie: the sector on a roll and offering yields of 8%-plus
This sector’s seen an upturn in performance, but many investors are steering clear. Our columnist considers whether this is a potential opportunity for contrarians.

19th June 2025

by Ian Cowie from interactive investor

Related Investments

AEWU, SREI

How do you fancy this for contrarian income-seekers ? A British investment trust sector that is so far out of fashion that the average fund offers a dividend yield of 8.1%, despite delivering total returns of 20% over the past year, but the shares continue to be priced -16% below their net asset value (NAV).

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Better still, for those of us who prefer winners to averages, the top investment trust among 10 funds in this sector, currently yields above 7.7%, despite delivering total returns of 32% over the last year; albeit priced at a more meagre discount of -4%. You normally have to choose between income and growth, but lucky shareholders here have enjoyed both.

That’s enough of the tease intro: step forward AEW UK REIT Ord
AEWU
0.77%

This £230 million fund also leads the Association of Investment Companies (AIC) “Property: UK Commercial” sector over the past five years and decade periods, when this real estate investment trust (REIT) delivered triple-digit total returns of 125% over both periods.

So, this little-known fund has notched up an impressive hat-trick to lead its sector over all three standard investment periods. While it’s important to remember that the past is not necessarily a guide to the future, it has clearly not been a value trap where the real price of a high income today is low or no capital growth tomorrow.

Named after its Boston-based founders Aldrich, Eastman and Waltch – hence AEW – the fund managers have earned their high annual fees of 1.6% by shrewdly tending a portfolio of smaller commercial properties; predominantly in the provinces. For example, its most valuable holding is the site for the Welsh packaging firm Plastipak in Gresford; followed by flexible offices in Northgate House in Bath; with 40 Queen Square, Bristol, not far behind.


The nearest AEWU gets to capital city glamour is London East Leisure Park in Dagenham. But relatively low property prices have pushed up rental yields and worked well for this fund.

Similarly, the second-best performer in this sector over the past year is Schroder Real Estate Invest Ord
SREI
2.62%

a £485 million fund that yields nearly 6.6% with total returns over the past year, five years and decade of 29%, 119% and 57%. It is currently priced at a discount of nearly -19% to its NAV.

Once again, the underlying portfolio is based far from big city bright lights and high prices. SREI’s top holding is Stacey Bushes Industrial Estate at Milton Keynes; followed by Millshaw Park Industrial Estate in Leeds; then Stanley Green Trading Estate in Cheadle.

However, it’s not cheap, with eye-watering annual charges of 2.7%, they can point to increasing shareholders’ income by an impressive annual average of more than 11% over the past five years. By contrast, AEWU has failed to sustain any annual increase in dividends over the same period.

Which brings us back to how they managed to combine capital growth with high dividend income and remain priced at discounts to their NAVs, along with most of the other eight funds in the “Property: UK Commercial” sector.

Working from home, a social phenomenon so well-known that it became an acronym, WFH, plus the growth of online retail, have convinced many investors that business parks, offices and shopping malls are dead or dying assets.

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While the online retail trend doubtless has further to run, we may have already passed the high-water mark for WFH, now that fear of contagious diseases – such as Covid – recedes in the rear-view mirror. However irrational it might seem to insist that employees who spend all day online should do so in an office, rather than their own homes, the fact remains that many employers prefer it that way – and increasing numbers are insisting on it.

Amazon, Barclays, BlackRock and, this week, HSBC, are among big businesses currently trying to encourage or enforce the return to office work. So, it seems that reports of the death of the office or other workplaces have been exaggerated and commercial property could continue to deliver capital growth plus income for contrarian investors.

Ian Cowie is a freelance contributor and not a direct employee of interactive investor.