Real Estate

BMO Property Growth & Income Fund - Open for business

Q&A with BMO Property Growth & Income Fund Fund Managers, Marcus Phayre-Mudge and George Gay on the lifting of the dealing suspension on the fund.
September 2020

Risk Disclaimer

The value of investments and income derived from them can go down as well as up as a result of market or currency movements and investors may not get back the original amount invested. Past performance should not be seen as an indication of future performance.

Opinions expressed by individual authors do not necessarily represent those of BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned.

At a glance

  • 15th June 2020 – 1st daily-dealing property fund to re-open
  • Hybrid of direct & indirect – an approach that provides income, a diverse opportunity set & liquidity advantage
  • Location matters – carefully selected physical assets and targeted equity exposure
  • No retail (except supermarkets) or London offices
  • We like German residential and other defensive sectors
  • Capital seeking yield bodes well for property
  • Our European exposure tempers Brexit risk

Location matters

When it comes to property, location matters – an ethos that lies at the heart of our BMO Property Growth & Income Fund.  We believe that active targeting of the right buildings in the right locations is key. Combine this with holdings in the very best property businesses operating in markets characterised by strong demand and tight supply, and the fund offers investors the attractions of real estate investing whilst avoiding its potential pitfalls and challenges.

Look beyond the headlines. Invest in sectors, locations and property companies that continue to offer real potential from an investment perspective.

Just now for example, would you want to be exposed to high street retail assets or prime London office space sitting empty as the WFH revolution gathers pace?  We see these as long-term structural shifts that have been magnified by the COVID-19 pandemic. The move to online retail has been in play for some time, but coronavirus has added further impetus – that’s bad news for high streets but supportive of the industrial /logistics sectors.  Offices outside London have fared reasonably well in terms of occupancy rates– a sharp contrast to central London which in a socially distanced world is paying the price for its status as the ‘longest average commute’ destination in Europe.

But look beyond the headlines and it is possible to select sectors and locations or property companies that continue to offer real potential from an investment perspective.  It’s this emphasis on the right locations together with our blended direct/indirect structure that meant back in mid-June we were the first daily-dealing property to reopen after uncertainty was lifted in the industrials and logistics sectors.  This brought our portfolio well below the trigger point set by the FCA and meant that our fund was suspended for just 8 weeks.

 

Best of both – direct & indirect

The structure of our fund is no accident.  When we launched 15 years ago, we chose a hybrid of UK physical property and Pan European real estate securities for good reason.  We wanted to tap into both the rental income stream of physical property and the liquidity, diversification and active positioning benefits of property equities.

Doing both, in our view, was key in offering investors access to an illiquid asset class in an open-ended and daily dealing format.  It’s a structure that’s been tried and tested.  The fund remained open through the credit crunch and global financial crisis – both real liquidity events.  Our recent 8-week closure was one that was enforced on us by regulator and was NOT due to liquidity constraints. 

PGI - Portfolio spilt - 04.09.2020

F&C Property Growth and Income Fund (onshore) was launched on 02.02.2015. This data relates to F&C Property Growth and Income Fund Ltd – this was previously an offshore fund that invested according to the same strategy as the F&C Property Growth and Income Fund (onshore), for which it is now a feeder fund. The fund name was changed to BMO Property Growth & Income on 12.11.2018

Source : BMO Global Asset Management. Data as at 04.09.2020

Risk Disclaimer

The value of investments and income derived from them can go down as well as up as a result of market or currency movements and investors may not get back the original amount invested. Past performance should not be seen as an indication of future performance.

Opinions expressed by individual authors do not necessarily represent those of BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned.

Outside of supermarkets we have zero exposure to UK retail or London offices.

 

Active property investing

The pandemic has reinforced the importance of something we’ve long been vocal about – the merits of active investing in property.  Our positioning in both physical and property equities has proven resilient over recent months.  Around 30% of the portfolio is in UK commercial property. Within that we have no retail exposure apart from supermarkets favouring instead the industrials sector and within that, logistics.  The outperformance of this area has continued with both values and rental growth ticking upwards. 

Use our handy glossary to look up any technical terms you are unfamiliar with.

Property management during pandemic – our favour for industrial and logistics units means that our tenants and buildings have been busy and occupied during the last six months.  We have concluded asset management across 16% of the physical portfolio, including the addition of £722,000 in new income from five new lettings.  Another two are under offer and in solicitors’ hands. We have also sold an industrial building during lockdown for 18% ahead of the independent valuation.

PGI Properties bought and sold

Selectivity in equities is key too and within the European real estate market we have a broad and diverse opportunity set, allowing us to pick the most attractive geographies, sectors and companies to invest in.  Sector wise we currently favour industrials, logistics, the private rented sector, supermarkets and healthcare.  Why? Because the underlying income from these sectors is underpinned by quality businesses generating attractive and reoccurring earnings.  After all, these earnings support property’s key attraction, its ability to provide an attractive and reliable income.

Related capability

Real Estate

Targeting secure income generators – emphasising sectors and companies capable of maintaining dividend payments as well scope for long-term capital growth potential.

Equity portfolio – sector distribution

PGI - Equity portfolio - Sector distribution 08092020

Equity portfolio represents 65% of NAV
Source: BMO Global Asset Management as at 08.09.2020.

65% of the equity portfolio invested in defensive / secure income sectors
-Healthcare / German residential / supermarkets / industrial

A September update from Marcus Phayre-Mudge

 

Entry point – why now for property & why BMO Property Growth & Income?

It’s the income advantage that we believe provides a tailwind for property from here as capital looks for income returns in a world of low bond yields.  There will also likely be flows within the asset class – logistics and industrials appear set to benefit at the expense of retail and offices.  We believe our portfolio is well placed to benefit.

Our geographical reach also positions the fund well – particularly as ongoing Brexit negotiations present UK commercial property with further unknowns.  Over half our portfolio is invested across Europe through positions in a range of high-quality business with the potential for rental growth.

Want to know more?  Get in touch with your usual BMO contact or why not sign up for our Annual Investment Conference – an online event taking place on the afternoon of 7 October.  In one of our self-select breakout sessions, Marcus Phayre-Mudge – fund manager – will be talking about the opportunities on offer to property investors right now.

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