Focused real estate funds outperform

Analysis from BDO, the accountancy group, has shown that the best real estate investment trusts (REITs) in the UK are region or sector specific, but size has no bearing on performance.

Financial market analysis and opinion for the UK investment industry

Financial market analysis and opinion for the UK investment industry

The survey found that four of the top five REITs had a narrow geographic focus, while seven of the best ten had a specific sector or geographic emphasis. The study found no correlation between a REIT’s market capitalisation and its results.

‘Despite challenging real estate markets and the backdrop of uncertain economic conditions, the majority of UK REITs continue to perform well,’ commented Tracy Dossett, tax director within the real estate and construction sector at BDO.

‘Investors generally view real estate as a safe, slow growth asset class with the potential to offer regular, predictable returns,’ she added. ‘This quality is particularly attractive in such uncertain economic times.’

BDO ranked A&J Mucklow Group (LON:MKLW), which concentrates on industrial and commercial property around the Midlands, highest. The firm’s shares have risen by 27 per cent over the past year, and it yields more than 5 per cent.

The REITs in BDO’s top ten included both small vehicles, like McKay Securities (LON:MCKS) and the Local Shopping REIT (LON:LSR), as well as established giants British Land (LON:BLND) and Land Securities (LON:LAND).

The one cause for concern raised by the paper was the high average gearing level maintained by REITs. Despite efforts within the sector to reduce debts, overall gearing is still 72 per cent.

For the survey, BDO reviewed 20 UK REITs, which held combined total assets of nearly £50 billion. It excluded those with market capitalisations below £5 million, those with only one year’s worth of results, and those only listed on non-UK stock exchanges.

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