Ignis UK Property manager believes commercial property sector offers investors more secure income stream and potential for long-term capital growth
George Shaw has managed the Ignis UK Property fund – formerly the Resolution Asset Management Property fund – since September 2007.
Launched in December 2004, and sitting in the IMA Property sector, the £556m vehicle is the top performer over five years to February 12 up 0.71% against a sector average decline of 11.5%, according to Morningstar.
On a three-year view, the fund is ranked third out of 27 vehicles, down 21.8% compared to a sector decline of 37.5%. Over twelve months it is up 13.7% against a sector average of 20.3%.
Ignis UK Property aims to achieve income and capital growth through investment primarily in UK commercial property but has the ability to invest in other asset classes if required.
The focus is on properties with good covenant strength to ensure a steady income stream. It may also invest in other property related assets including property shares and cash for liquidity purposes.
The manager seeks geographical diversification through the range of properties held in the portfolio. London accounted for 32.1% of the fund’s exposure at 31 December, followed by the North East/Scotland 22.5%, South East ex London 26.7%, East Anglia/South West 11.65%, and Midlands/Wales 7.1%.
The fund attempts to diversify risk by seeking exposure in three main sectors – retail, office and industrial – and may also invest in other commercial sectors including leisure. Retail is the largest sector at 35.5%, followed by office 36.9%, industrial 22.7% and leisure 4.9%.
The top five tenants are government/public sector at 8.5%, TBWA UK Group 3.8%, DSG Retail 3.6%, Avanta Managed Offices 3.5% and Kenwood at 3.5%.
George Shaw has 18 years’ investment experience. Previously a senior surveyor at property consultancy Weatherall Green and Smith, he joined Lambert Smith Hampton as an associate director in 1996.
In 2002 he joined Abbey National Asset Managers as a property investment manager before becoming part of Resolution Asset Management’s property team in December 2005.
In November 2008, Resolution Asset Management was renamed Ignis Asset Management following the merger with Axial Investment Management.
The manager says the fund management team has a long history of managing commercial property. He believes commercial property offers investors a secure and stable income stream and the potential for long-term capital growth.
He says: “The fund invests predominantly in bricks and mortar – offering diversification from equities and bonds. Being fully invested in property should support its income stream and protect investors if property shares fall in value.”
He describes his investment style as methodical and detailed, focused towards income return.
“We tend to buy assets we are going to hold for the long term, build our income and thereafter get some capital growth,” Shaw says.
The manager believes the fund’s strong performance can be attributed to two key factors.
He says: “Firstly, the stocks in the fund are predominantly prime good quality stocks with a diversified broad range of tenants.
“Secondly, we pride ourselves on our pro-active asset management. We spend a lot of time working on our lease renewals, expiries and voids – anything which is affecting our income. We make sure we keep a low void rate, moving our rents on and retaining tenants.”
Shaw has not made any significant alterations to the portfolio in recent months, because he says his main priority is to maintain income through existing stocks.
However, he is actively looking to expand the portfolio by acquiring good quality assets provided they can be purchased at a reasonable price.
“Income will still be a key driver going forward. We will look to expand the fund and maintain our performance levels,” Shaw says.
He currently favours central London offices as a recovery story and a source of potential outperformance for the fund.
Shaw believes investors should continue to look at property funds because the UK commercial property market has passed through the bottom of the current cycle, in particular with regard to capital decline.
He says: “Sentiment towards property continues to improve as investors are increasingly drawn towards the income return and the relatively high premium provided over gilts and alternative asset classes.”
He believes the fund is well positioned to benefit from market improvement by having a strong and diversified income stream, low voids and a wide spread of prime assets.
“Proactive asset management of the fund’s income stream will remain the key to relative performance. However, the improving investor and transactional markets have allowed us to focus attention towards strategic acquisitions and sales.”
However, he cautions: “Risks in the wider economy remain, not least those associated with predicted growing unemployment and the inevitable fiscal tightening. Forecasts continue to be modified and positive returns are widely predicted from 2010 onwards.”
Despite these concerns, Shaw believes the fund’s performance will be sustained over the next year.
“The fund is well diversified in its geographical, sector and tenants mix so I think we are well placed to cope with the inevitable ups and downs you get in managing any fund,” he says.
“There is a reasonable amount of stock out there so we should be able to expand the fund. We just have to take care with stock selection and make sure we do not overpay for assets.”
