Concerns about the London property market have led Mark McKenzie, manager of the recently launched Thomas Miller Investments (TMI) Diversified Assets fund, to shift his allocation to less expensive regions of the UK.
The manager bought specialist property investment trusts, Tritax Big Box and Empiric Student Property, which currently comprise 5.9 per cent and 5.2 per cent of the fund respectively. The trusts are now the second and third largest fund holdings.
Property is Mr McKenzie’s second highest asset class allocation in the £2m Diversified Assets fund at 22.5 per cent, according to the fund’s latest update.
He previously held London prime and southeast property, but predicts these regions will struggle in the future. Since non-southeast property has lagged the capital’s prices, these areas have the potential to outperform, so he has been shifting to “a regional bias, to pick up yield”.
The £860m Tritax Big Box investment trust has strongly outperformed the AIC Property Direct – UK sector so far this year (until October 13), returning 17.1 per cent compared to 7 per cent, according to data from FE Analytics.
The £354m Empiric Student Property trust also outperformed the sector with a 9.2 per cent return.
Despite a positive outlook on some property, a cash allocation is the largest single holding in the portfolio at 9.1 per cent. However, Mr McKenzie plans to use this cash in private equity, which currently accounts for 18.6 per cent of his portfolio.
Private equity is “slightly higher risk”, but there was a potential for organic net asset value growth in a mature portfolio, he added.
Infrastructure currently makes up almost a quarter of the assets at 24.4 per cent, according to the latest fund update. The manager explained this allocation is split into two sub categories: social infrastructure, like schools and hospitals, and renewables.
The latter has been “slightly weaker” since the fund launched, Mr McKenzie said, but added: “It has a strong supporting system. I think governments across the globe support well-developed infrastructure and it will continue to be well supported.” Despite infrastructure’s appeal, Mr McKenzie said allocations would not go above 30 per cent.
One of his favourite debt vehicles is his top non-cash holding, the Catco Reinsurance Opportunities fund, which makes up 8.5 per cent of his portfolio.
The fund generates returns from investments linked to catastrophe reinsurance risks, principally by investing in fully collateralised reinsurance contracts. Therefore it has no correlation to broader equity markets as “it’s tied to meteorological events in the main”, according to Mr McKenzie.
