Professional Connection Newsletter

12th July 2007

Welcome, to the Cockburn Lucas Professional Connection Newsletter. In this edition of our newsletter we have decided to focus on property investment, given the recent volatility within both the Real Estate Investment Trust sector (REITs) and also the recent change to pricing of UK commercial property funds from certain companies. We also include some partner commentary from Friends Provident and details of some of the other property funds we recommend. And finally we have included a recently published performance table for Cautious Managed Funds to show that 'we sure do pick'em....'!

For further details on any of the articles below please contact us on:

Telephone: 0115 9476005. Website: cockburnlucas.co.uk E-mail: tr@cockburnlucas.co.uk

Mike Horseman outlines the Cockburn Lucas take on the current property markets

Standard Life, Prudential and New Star are now starting to experience outflows of capital from their own property funds, which has prompted them to move from an 'offer price' to a 'liquidation' basis, which, in effect, will mean those investors withdrawing may now be subject to a 6% charge.

As commercial property as an asset class plays an important part of a balanced portfolio, these announcements could signal, as our previous newsletter hinted, that the ‘property party is now coming to an end’ and returns will be markedly slower over the next five year cycle than investors have previously been used to.  Indeed, Mike Hannigan, Investment Director of the Property Team at Standard Life, is projecting returns to slow over the next five year period to between 4% and 5% per annum, with returns reverting to their long-term mean of around 10% per annum thereafter.

Over the past 18 months or so, we at Cockburn Lucas have been repositioning our client portfolios away from UK commercial property into global property, specifically concentrating on Europe and Asia.  Funds such as Sarasin Global Property and Schroder Global Property, as well as Fidelity Asian Property have been used within our portfolio to gain access to these global markets. 

Furthermore, we have given our investors access to the Thames River Property Growth & Income fund early on in the property cycle – the fund currently only holds 42.8% inside the UK commercial market, having deftly moved into the European property markets over 12 months ago.  It is these types of fund managers showing active asset allocation and forward thinking that Cockburn Lucas specialises in, searching out and ensuring our clients and professional connections gain access to only the very best fund managers in their sectors. 

So, perhaps property is not going to be seen as a ‘one-way bet’ for the foreseeable future and both investors and asset allocators will reassess their weightings in this regard.  One thing is for sure, good property in good locations, with sustainable rental yields will always add value to a client’s portfolio.  However, making money from property in the next few years will become much harder and will require expert professional guidance.

Contact us for information on property investments.

Friends Provident Commercial Property Fund –Update from F&C Investments

The recent announcements from both Standard Life and the Prudential clearly flag up that they are experiencing outflows from their property funds. While commentators, including ourselves, have been saying that we believe the returns from property will slow to single digits, few have been predicting any significant fall in values, particularly amongst prime property, which is where the Friends Provident (FP) fund is focused.

Our view remains that rental yield and growth based on rental yields will become the key drivers of returns, not capital growth as a result of yield compression. As such it would be interesting to know who is advising investors to shift out of property and even more interesting to find out where these proceeds are being re-invested, given that returns from corporate bonds remain muted, the UK equity market is at a multi year high and we are probably pretty close to the peak in interest rates in the current cycle.

While some have speculated that the change has been forced by the need to sell properties, this is unlikely to be the case at this stage, to be fair to all policyholders and those remaining in particular, the change in pricing comes when there is a discernable trend of encashments from the fund rather than waiting until all cash resources have been exhausted.

The question now is whether these moves signal an imminent change to the pricing of the FP Property Funds. Currently, there is no intention to do so while the fund continues to attract new inflows. However, we should make clear that if the FP funds also start to experience a consistent outflow of funds, the matter would need to be reviewed. One of the risks to the sector, is that if enough investors start to believe that property values will fall and therefore encash their holdings, it becomes a self-fulfilling prophecy.

Finally, while the values have fallen at Standard Life and the Prudential, at this stage these are ‘paper’ losses and only become ‘real’ losses should an encashment be made. Before making any snap decisions investors should review the role of property in their investment portfolio in terms of asset diversification and, secondly, where would they place the proceeds of any encashment to achieve the same investment mix.

Please contact us if you wish to discuss any property invesments.

Funds investing UK property

Strata Fund - Raising Funds now. Run by Evolve the fund is both 'SIPP'able and available for IHT purposes. It offers the opportunity to benefit from the expertise of a highly experienced boutique fund management team. We have worked with Evolve on a number of projects and believe this vehicle will offer substantial benefits in both income and capital growth.

Allianz Fund - Raising Funds now. A property fund specialising in new commercial property, it offers the investor the potential returns of direct property investment but limits their risk through delegated management and greater diversification than an investor could achieve on their own.The only downside is it is proving very popular and it has a limit on funds invested which is likely to be reached in the next few weeks.

Funds investing in equity in the global property market

Sarasin CI Global Property Fund - selected over 18 months ago, the fund was underweight in areas such as the United States which we wanted and gave us exposure to Asia and Europe. Ranked in top quartile, it has delivered above average results with below average volatility.The team don't have huge marketing budgets and in our opinion are a hidden jewel in the global property sector.

Schroders Global Property Securities Fund offers access to the robust process adopted at this well known investment house and is currently underweight US with complimentary allocation and investments to our other major global property fund partners at Sarasin.

Fidelity's Asia Pacific Property Fund is for investors wishing to take a holding in Asia for it offers a collective portfolio and good sector and geographical exposure to this exciting market as well as the opportunity to benefit from rising demand and prices in this dynamic part of the world.

For further information on any of these funds please contact us.

Selection of Top Performing Funds in the Cautious Managed Sector.

If you have ever sat with Toby Reid in a meeting, you will undoubtedly have heard him at some stage droning on about consistently picking top performing funds. Well to justify these wild claims we have included a recently published table of the top 10 cautious managed funds.

We use 8 different funds out of over 180 of the currently available and 5 of the funds that we have selected are in the top 10 performers. So if we have done 'the math' correctly 63% of our chosen funds are in the the top 5% of the market.

Ticked below are the funds that we selected. You can see the performance  and ranking. So not only are you getting a great spread of asset allocation and spread of risk in your investment portfolio you are also accessing the best performing funds in each area. Plus you should also now have the reassurance that there was at least some substance to Mr. Reid's droning!

For more information on any of these funds or our fund selection process please contact us at:

Cockburn Lucas.

Telephone: 0115 9476005. Website: cockburnlucas.co.uk E-mail: tr@cockburnlucas.co.uk

The views/opinions expressed in this newsletter do not constitute personal advice or a recommendation - it is important to seek independent financial advice.

Cockburn Lucas Independent Financial Consulting Limited. Authorised & regulated by the Financial Services Authority. Registered address Milton Chambers, 19 Milton Street, Nottingham NG1 3EU. Registered Number: 3365186

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