There are two tried and tested ways to get exposure to the UK economy in its broadest sense, through property and smaller companies funds. A good example is the Invesco Smaller Companies Investment Trust, where shares were trading on a 10% discount to the value of its underlying investments at the start of April.
The trust invests in companies from £60m to £1.5bn in size and has a mix of holdings including more domestically focused businesses and those that make a large proportion of their revenues overseas. The managers seek companies that can double in size on a five-year time horizon and are strong believers that a lot of the negative commentary about the state of the UK economy is hiding the fact that it is fundamentally quite sound.
Since early autumn 2021 they have been buying back into companies that have become much cheaper by their reckoning, a consistent strategy that tends to work well for patient shareholders. Some of the companies they now hold are ones they sold out of in early 2020, just ahead of the pandemic when they felt they were becoming too expensive. The trust has had good success recently with diverse holdings in Sumo Group, Clinigen and Sanne, all of which have been taken over.
Bricks and mortar
A good bellwether for the state of the UK economy is the property market, and the Regional Reit managers believe life on the ground is better than some commentators would have investors believe.
The trust has been very active in the past couple of years, deftly moving out of parts of the UK and property sectors that have either had a tough time or where better alternatives have been found. This approach has been good for investors but there is more to come from this trust.
Retail property accounted for less than 4% of the 168 buildings it owned at the end of 2021 and the intention is to move completely out of this sector when the opportunity arises. The trust made a smart acquisition in August 2021 and the most recent set of results released at the end of March show the total dividend for the year rising to 6.6p per share from 6.5p in 2020. Dividends are paid quarterly. Three-quarters of its properties are in England with the biggest concentration in the southeast, midlands and north-west, economically the most resilient parts of the UK.
Specialist real estate investment trusts, focused on ownership and development of high-quality real estate in growing niches, represent a financially sound holding for investor portfolios and provide reliable income, according to Matthew Norris, investment adviser to the Gravis UK Listed Property Fund. In February, only six UK-listed real estate companies delivered positive returns and three in particular stand out for Norris. The best-performing property company was Unite Group, the largest listed owner and operator of purpose-built student accommodation in the UK, returning 3.29%. Within the digitalisation mega trend, Segro, a leading owner and developer of modern warehousing across the UK and continental Europe, reported increased “strength, breadth and depth of occupier demand”. Finally, Primary Health Properties, a leading owner of modern GP surgeries, declared its 26th consecutive year of dividend growth, increasing its proposed annual dividend by 4.8%. According to Norris: “This impressive long-term track record underlines the strong fundamental characteristics of this sub-sector and the benefit of receiving government-backed rental income.”
See also: Civitas Social Housing REIT review