subject: A Different Way To Play The Property Market [print this page] Real Estate Credit Investments buys the bonds of companies operating within the sector and this unusual approach helped it become the fifth-best performer in the AIC universe last year.
Market psychology and the trouble surrounding the banking sector have created compelling valuations in property, according to Shamez Alibhai, manager of the Real Estate Credit Investments trust (RECI).
The manager says that his fund's losses in the three months to December and gains in the three months to March are indicative of no more than the illogical nature of markets.
"In the third quarter we saw an intensification of the eurozone crisis and because the bonds we buy are marked to market, their price dipped even though the quality of the asset was the same," he said.
"For us we saw a real buying opportunity, so in November we bought ?m at 72 per cent of par."
Alibhai, whose trust was the fifth-best performer in the AIC universe last year, with returns of 132.9 per cent, takes a different approach to other managers in his sector in that he buys bonds in quality property securities.
All five of the top performers were in lesser-known sectors, suggesting that investors willing to follow contrarian strategies may do better.
Last month FE Trustnet reported Lord Oakeshott's claims that investors in property could gain access to strong dividends but would have to weather capital losses; however Alibhai says he buys bonds he expects to repay at par in the long-run.
RECI repositioned itself last year so that 90 per cent was invested in the UK and Germany, where Alibhai says there are plenty of buying opportunities for those willing to move in and out of cash and wait for the right moment.
In particular, the huge influx of demand for homes in London and the south-east means there are great opportunities in this country.
"We have seen high capital inflows because buyers are trying to find real assets with stable cashflows," he said.
Real Estate Credit Investments?dividend of 1.7p per share amounts to a 7.9 per cent yield on the current valuation, and the fund has set a target of 6 per cent in the future.
"It's an attractive yield on a defensive asset class," Alibhai commented.
The manager is keen to stress that he is not buying distressed debt but dislocated debt, good quality assets that are trading below par.
"The fund is 90 per cent dominated by the UK and Germany. Those are geographies that are not distressed," he said.
"There are certain geographic areas that are very attractive in terms of being able to keep property values and there are other places like Spain where I am very sceptical, so you need to know your ground," he added.
Speaking to FE Trustnet last month, AWD Chase de Vere's Patrick Connolly warned that he was not optimistic about property over the next few years, although he said that in the long-term it has the potential to do well.
