Marcus Phayre-Mudge and George Gay discuss the thinking behind the CT Property Growth & Income Fund, together with their perspectives on how property investing has changed over the past two decades, actively managing real estate and the opportunities available for investors.
Why did you launch the CT Property Growth & Income Fund 20 years ago?
“In a word, liquidity. The ability of physical property to generate an attractive income, together with scope for a capital kicker, can make it an attractive option for investors. And, of course, it is also a great diversifier to equity and bond holdings. To my mind, there’s a fundamental mismatch between physical property and the daily liquidity demands many investors have. We set out to address that issue through a hybrid portfolio structure that combines readily tradeable listed real estate and select UK physical property assets.”
Marcus
What’s the split between listed and physical real estate?
“We’re typically split 67% listed real estate, 30% physical property and 3% cash. We thought carefully about the most appropriate balance and think we’ve got it about right. These weightings give the fund the ballast of physical property, reducing volatility and providing higher levels of income, whilst not unduly affecting the liquidity profile of the portfolio. A higher equity weighting reflects the more volatile nature of listed property. Short-term drawdowns are part and parcel of equity investing and we need to be mindful of how such episodes could impact our overall asset mix. Some of the newer ‘hybrids’ are anchored around the 45% equities/45% physical/10% cash mark, but that could swing markedly as shares fluctuate – which in turn creates liquidity considerations. It’s also worth mentioning cash at this point. Our investors have actively chosen to invest in real estate. Whereas cash drag can be a real problem for purely physical vehicles, the liquidity characteristics of listed real estate mean this isn’t a problem as we can more readily invest in the market. Most importantly, our asset mix has been tested in the most difficult market conditions including the global financial crisis (2008), the ramifications of Brexit vote (2016) and the COVID pandemic (2020). We have never had to close the fund to redemptions for liquidity reasons.”
Marcus
Any notable trends or themes over the past 20 years?
“The two big trends that stand out have been the rise of online retail and the growth of alternatives. When we launched in 2005 the iPhone was still two years off its debut, online retail sales were just 2.5% of all sales, physical retailing was at its peak and the industrial sector was seen as mostly ‘grubby manufacturing on the wrong side of town’. The retail sector was 59% of the IPD UK Index (now MSCI) and industrials accounted for just 17%. Fast-forward to today and the industrial sector has increased to 48% of the index, retail has reduced to 23% and online retail now accounts for 31% of all retail sales1. You can’t have driven down any UK motorway in the past 10 years and not noticed the huge (mostly blue and grey) logistics units built at many junctions to sustain the online-driven demand for warehousing. In contrast, only one shopping centre has been built – Westgate in Oxford. The returns from each sector speak for themselves.
The rise of the alternative sector has also been a huge opportunity. Through the listed portfolio we can invest in hotels, healthcare (primary and elderly), self-storage, student accommodation and the private rented sector. Twenty years ago, these options were nascent at best.”
George
We’ve seen other asset managers begin to adopt a hybrid approach – what makes the CT Property Growth & Income Fund different?
“We are specialists in both areas (physical and listed) and will actively manage 100% of the portfolio on behalf of investors. While we have been running the fund for 20 years, the strategy was born out of the TR Property Investment Trust, which has been managed by the team for almost three decades. We are active investors and that means our holdings are based on fundamental research – we look for quality companies operating in sectors and locations characterised by undersupply and robust tenant demand. These factors are key in driving rental growth and, subsequently, the ability to pay dividends and share price performance. Management quality plays a key role in our stock selection – we seek proven track records and incentivisation that is aligned with shareholders. Over the years we have demonstrated the benefits of this highly selective approach. By being active in the listed space our approach stands in contrast to others that choose to invest more broadly through an ETF or other passive vehicles.
Our approach to physical property is also a key differentiator. Typically, our properties are in the £2-£10 million range – a market segment that offers the widest and deepest range of buyers and sellers. Yes, it is more work than buying the larger assets typically favoured by bigger pure property funds, but when the large players are not buyers in the market who do you sell your £50 million asset to? Crucially, we also focus on freehold buildings with leases of five years or less – a bias that usually means higher yields and maximises the impact of our hands-on approach to buildings management. For us the property is not a dot on a map or a line on a spreadsheet. We build long and strong relationships with our tenants, which allows us to understand the local market and the tenant’s space requirements. Because of this we see vacancy as an opportunity not a threat.“
Marcus
How tactical are you in terms of asset allocation?
“You can see from this graphic that allocations do vary over time, and this reflects our desire to harness relative opportunities between listed and physical real estate when they arise. Since 2022, for example, we have been actively locking in gains by selling select UK physical assets and reinvesting the proceeds in listed equities. Why? Because we’ve been able to sell buildings at or above valuation and see a real pricing disconnect compared to the listed space where share prices are trading on wide discounts to underlying asset values.
One of our favourite examples of the synergies of ownership of both physical property and listed equities came in 2015 at the beginning of the boom in demand for the industrial sector. We bid on a multi-let industrial estate in Solihull, putting forward what we considered to be a very strong offer. Not only did we not succeed but we came sixth in the bidding behind an all-institutional line up of competitors. This was our ‘canary in the coal mine’, an early warning that values in the sector were on the move upwards! Our response was a significant and early push into industrial-focused equities, which has been a bedrock of performance ever since.”
George
Minimal cash drag and active asset allocation
- Transacted over £322m of physical property for the fund since inception
- All sales carried out on average 4% higher than valuation 2 months prior
F&C Property Growth and Income Fund (onshore) was launched on 02.02.2015. This data relates to F&C Property Growth and Income Fund Ltd – this was previously an offshore fund that invested according to the same strategy as the F&C Property Growth and Income Fund (onshore), for which it is now a feeder fund. The fund name was changed to BMO Property Growth & Income on 12.11.2018, then to CT Property Growth & Income on 04.07.2022.
Source: Columbia Threadneedle Investments. Data as at 12 February 2025
Where are you currently seeing opportunities?
“Aside from rotating some physical exposure into the listed space, we continue to be active in terms of where the portfolio is positioned. In 2024, for example, we selectively added to the European retail space through names like Klépierre, an operator of 70 shopping malls in cities like Paris, Madrid, Rome and Barcelona, and Eurocommercial, who own 24 shopping centres in Belgium, France, Italy and Sweden. These, together with the addition of Supermarket Income REIT, added more quality income generators to the portfolio. Indeed, European shopping centres now account for the portfolio’s largest single sector exposure. Contrast this with UK retail, where we have a limited listed weighting and zero physical exposure to shopping centres or high street retail. Elsewhere we have added to German residential – a favoured sector of ours – and trimmed weightings in British Land and Landsec. M&A remains a theme in the sector – a function of the value on offer – and we’ve locked-in profits in select names where they have been the subject of acquisition activity.”
Marcus
