Rebuilding your clients' property exposure with a fund of UK REITs

5 minute read

Matthew Norris

Director, Real Estate Securities

The problem?

Investing in property has formed a core element of portfolio construction in the UK for years, but in recent times the illiquid nature of direct property funds has been fully exposed. Gating of these products has denied investors access to their cash during turbulent times such as Brexit and COVID, leading to many players leaving the market.

The solution?

A fund of listed real estate securities structured as Real Estate Investment Trusts (REITs) or Real Estate Operating Companies (REOCs). There are more than 60 of these entities in the UK, specialising in areas such as purpose-built student accommodation, e-commerce fulfilment centres, urban logistics, self-storage, GP surgeries, care homes, and private rented homes.

Why consider REITs?

  1. Reliable income – REITs offer attractive dividend yields with growth potential. What’s more, 90% of all rental income must be distributed to investors. They can also be tax-efficient and received gross by the investor.
  2. Growth & inflation protection – Contractual rental growth typically leads to capital growth.
  3. Liquidity – REITs are traded daily offering good liquidity.
  4. Lower portfolio volatility – Academic research shows that 5-15% exposure to REITs makes a multi-asset portfolio less volatile and increases returns*.
  5. Specialist – REITs give access to specialist areas which are typically the high growth next-generation segments of the real estate sector and managed by highly experienced specialist teams.
  6. Modern – Portfolios often consist of modern, energy efficient, and purpose-built assets, enabling investors to identify and isolate specific areas for investment which can generate reliable and growing income for the long term.
  7. Avoid yesterday’s sectors – Retail and regional office sectors have struggled in recent years and have seen deterioration in rental yields. With a fund of REITs, if you have any concerns about a particular sub-sector, you can exit by selling the shares on the stock exchange in minutes, as opposed to having to sell a direct property exposure which can be a costly, complex, and lengthy process.
  8. No FX concerns – Income is typically a key component of total return when investing into property and focusing on only UK listed REITs means these elements are not impacted by currency fluctuations.

How does age affect the optimal REIT allocation?

* Past performance is not necessarily a guide to future performance. Source: Morningstar Funds Management Glide Path. EPRA Research Paper.

Why now?

  1. Capitalise on peaking interest rates – US, UK, and European central banks all held rates at their final meetings of 2023 and markets are pricing in rate cuts during 2024.
  2. Yields are plateauing – 5-year gilt yields have dropped by 4.0% (below the yield offered by high quality REITs).
  3. Attractive valuations – There are discounts of share price to NAVs across the sector with mispricing opportunities for selected sub-sectors/stocks that have been sold off indiscriminately**.
  4. Outperformance – History shows that REITs perform well after a hiking cycle and investors have been rewarded for investing around points of extreme NAV discounts: 17% average 1-year return, 24% average 2-year returns.
  5. No recession worries – Due to the long leases of the underlying assets, some REITs can be less sensitive to the economic environment and the income of these tends to be resilient in economic downturns***.
  6. Long term trends – There are many including ageing population, digitalisation, generation rent, and urbanisation.
  7. Investor interest – Fund inflows to REITs already began in 2023.
  8. Don’t miss the bounce – The day of the November 2023 UK interest rates decision, the Fund experienced its second largest ever one day rise of 8%.

Megatrend NAV discount

** Source: Gravis Advisory Ltd research. Discount to NAV data as at 29 December 2023 and portfolio weight as at 31 December 2023. Note: portfolio weight excludes cash 0.8% and Lxi REIT, long income 1.99%. NAV is the net asset value reported by the company, typically this is the Net Tangible Asset. 

Bloomberg UK Recession Probability Index (%)

*** Source: Bloomberg LP, Gravis Advisory Ltd. Median forecast of probability of recession 1 year forward, survey based.

Why the VT Gravis UK Listed Property (PAIF) Fund?

  1. Manager and team experience – Lead adviser, Matthew Norris, has two decades’ investment management experience which has had clear focus on real estate securities. Matt is ably assisted by Emma Ballard who has experience in direct property valuations, whilst Senior Research Analyst, Shayan Ratnasingam, has vast experience in the sector having managed a real asset fund at Liontrust and having been a sell side analyst at Winterfloods.
  2. Excellent track record – Since its launch, the Fund has decreased by 1.08% (A Acc GBP), significantly outperforming the UK Real Estate Index which decreased by 13.92% in the same period. It has an MSCI ESG Rating (AAA) and a rating from Ethical Screening. It has been profiled as risk rating 5 (out of 10) from Dynamic Planner.
  3. High and growing yield – The Fund’s yield is currently 4%+ and growing at a rate of 4% per annum****.
  4. Attractive valuations – GULP trades at an estimated -21.0% discount to Warranted NAV.
  5. Daily dealing – It’s an alternative and more liquid way to access the asset class. It was the only UK property PAIF fund to remain open throughout the pandemic.
  6. Diversification – The portfolio is currently exposed to an estimated 5,000 properties with over 100,000 tenants.
  7. High quality future proofed portfolio – There is a clear preference for high quality assets with good EPC ratings and avoiding stranded assets as well as value traps*****.
  8. Long-term opportunities – The Fund has a clear top-down megatrend process ensuring only exposure to next generation growth sectors whilst avoiding potential pitfalls such as retails.
  9. Every little bit helps – Since inception, the Fund has invested £14.8m into 24 placing programmes (new issuance of equity) and made savings of over 144bps. When buying UK domiciled and UK listed securities such as REITs via placement programmes, no Stamp Duty (50bps) or Broker Comm (5bps) is paid – only a transaction charge which is paid for by Gravis and not the Fund.

Cumulative DPS growth

**** Past performance is not necessarily a guide to future performance. Data as at 31 December 2023. Distributions shown are for the A Inc Share Class. Source: Bloomberg LP and Gravis Advisory Ltd.

Managing climate risk

***** Gravis Advisory Ltd analysis, based on current portfolio holdings with EPC ratings. Energy Performance Certificates for Buildings Register for England and Wales - Department for Levelling Up, Housing & Communities.

The VT Gravis UK Listed Property Fund is designed and managed to capitalise on developments in the UK’s listed property sector. By buying REITs (which generally own younger, fresher, more environmentally considerate buildings) it aims to deliver an income from a diversified group of sectors through a huge portfolio of buildings from a massive pool of tenants. The Fund focuses on four powerful socio-economic mega trends: ageing populations, digitalisation, generation rent, and urbanisation. The Fund avoids high street retail assets. The Fund targets 4% per annum dividend yield with charges of 0.7% taken from capital. The Fund is a PAIF, which will ensure the maximum tax efficiency and least drag in income paid to tax efficient wrappers.

Important information

This information has been prepared by Gravis Advisory Limited (“the Investment Adviser”) and are for information purposes only. It is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation. Any recipients outside the UK should inform themselves of and observe any applicable legal or regulatory requirements in their jurisdiction. 

The information should not be considered as a recommendation, invitation or inducement that any investor should subscribe for, dispose of or purchase any securities or enter into any other transaction with the VT Gravis UK Listed Property (PAIF) Fund, or any other Fund affiliated with the Investment Adviser.  The merits and suitability of any investment action in relation to securities should be considered carefully and involve, among other things, an assessment of the legal, tax, accounting, regulatory, financial, credit and other related aspects of such securities.  

Although high standards have been used in the preparation of the information, analysis, views and projections presented, no responsibility or liability whatsoever can be accepted by the Investment Adviser for any errors, omissions, misstatements, loss or damage resultant from any use of, reliance on, or reference to the contents. The views and opinions contained herein may not necessarily represent views expressed or reflected in other Gravis communications, strategies or funds and are subject to change.

VT Gravis UK Listed Property (PAIF) Fund, is a UK Non UCITs Retail Scheme (NURS) Open Ended Investment Company (OEIC) with Property Authorised Investment Fund (PAIF) status.

Past performance is no guarantee of future performance. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested.

Gravis Advisory Limited (Registered Number: 09910124) is an Appointed Representative of Valu-Trac Investment Management Ltd, which is authorised and regulated by the Financial Conduct Authority.

Gravis Advisory Limited’s principal place of business is: 24 Savile Row, London, W1S 2ES.


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