He commented that several sectors of the UK market are ‘priced for armageddon. UK property REITs (investment trusts that own physical property) are priced like that, and there could be a lot of upside if Armageddon doesn’t happen. Then there are the more esioteric property REITs, companies that are less sensitive to the politics and the economy. We are invested in Civitas, which is a social housing provider, and the Secure Income REIT. UK property generally has been flat this year in terms of returns, but you are compensated for that by the (income yield).’ ’
Secure Income REIT owns assets such as hospitals and theme parks, generally on very long leases.
Sullivan is also keen on UK bank shares as he takes the view that inflation will generally be higher in the coming years than it has been in years gone by.
He commented that ‘equities are the least worst asset class right now.’ Sullivan takes the view that there are two areas of particular value.
‘You look at who are the winners from the Euro, not all of the constituents have benefitted of late, but Germany has. The German economy is thriving, the economic data is very resilient, and the valuations are appealing.’
The second equity market he highlighted is that of Japan. Sullivan said, ‘The Japanese equity market has performed very well over the past five years. But the key is that earnings have also grown in that time, almost to the same extent, so arguably the Japanese equity market is no more expensive now than it was five years ago. And when you look at the valuations, the Japanese shares we have been buying are trading at around 0.9 times their book value, that compares with around three times book value for US shares.’