‘We’ve done the sums: big doesn’t mean better’
During periods of market volatility, the attraction of strong and steady returns is clear. Richard Peacock and David Wise, of the £755m Kames Property Income fund, tell Telegraph Money why commercial bricks and mortar can offer security for investors.
What makes you different from other property funds? David Wise:
I’d say we adopt a more entrepreneurial approach. We operate a bit more like a property company in that we focus on goodquality, undervalued assets. More typically we will buy assets in the £5m to £20m range. Most of our big competitors will go for larger properties than that.
We’ve been able to do some analysis to demonstrate that smaller properties, on the whole, tend to generate higher income returns. It is a growing trend among our peer group that big is best, but that tends to generate competition for the same kind of asset. It drives down yields and
pushes up prices. Small properties help income and performance, as well as liquidity. There are obviously more buyers for a £5m building than there are for a £50m building.
Who is the fund for? DW:
We focus on income as a longterm driver of returns in the sector and look to deliver an attractive income yield.
While it wouldn’t exclusively be for this group, our typical investor would be retired, using “income drawdown” and looking for an income fund that provides some capital protection but offers a good income of around 5.5pc.
How do you pick your holdings? RP:
We look at three strategic objectives in our holdings: they should deliver regular income, provide an attractive overall return as an investment and also offer liquidity, which means picking holdings we can
CV: Richard Peacock and David Wise RP:
Joined in December 2016 from Aviva Investors, s, where he e was the manager r for its Pensions ns Ltd Property Fund.
Joined in October 2007. He was previously at Aviva Investors for 21 years.
sell if necessary.
We see an awful lot of opportunities on a daily basis. So we try to tie them back to our objectives. We look at how sustainable that income is. Where does that building sit in the local marketplace, how likely are the occupiers to stay there, what does that market look like from a supply-anddemand perspective?
We are not a research-led investment firm, so we are not prescriptive in targeting a city or a sector and saying “go and find me a building that has 6pc income in this town, because I’m going to buy it”.
We don’t own shopping centres, we don’t have any department stores, we don’t have supermarkets that the occupiers don’t want to be in any more. Bricks-and-mortar retail will not come to an end, the high street isn’t dead. But some are going to struggle to thrive and reposition themselves.
The challenges in the retail market have not fully fed into valuations yet, but you are starting to see it.
The managers of Kames Property Income tell Sam Barker why their fund avoids owning department stores
What has been the fund’s worst investment? DW:
It was a former food supermarket in Rochdale on a very large site that became a car supermarket, let to a company called Carcraft. They were a not insubstantial operation. Quite a number of our peers had exposure to the same business. Unfortunately it failed, and we ended up taking the site back.
We then turned to our plan B, which, as is typical for us, was to look at development. We ultimately sold the business for residential development and came out of that.