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Star managers move back into undervalued property

A growing number of managers are being drawn to the sector due to the massive discounts to NAV available on many property companies.

Thomas McMahon

By Thomas McMahon, Senior Reporter, FE ...
Thursday May 02, 2013

There are massive opportunities in property for value investors, according to Paul Mumford, manager of the Cavendish Opportunities fund, who says this is one of the best times to invest in the sector in his 45 years in the industry.

Mumford is one of a number of highly rated managers moving back into the unloved sector, either in search of bargains or just a steady source of income.

The Jupiter Merlin team told FE Trustnet last week that they were looking to find the right way to get back into the sector, while Henderson’s head of multi-asset Bill McQuaker says he is selling down his bond holdings in favour of property.

Mumford (pictured) says that investors’ fear of the sector over the last few years has pushed the shares of property companies onto huge discounts to NAV. ALT_TAG

He says that on pure valuation grounds this is a fantastic time for growth investors to be getting back into the sector through shares.

"It’s the sector that is always one of the most badly hit [in a recession] and there are so many cheap opportunities around," he said.

The manager adds that the state of the property market reminds him of when he started his career in the 1960s.

"One of my first jobs in the markets was when the property market hit the bottom in ’67 and ’70, and I have been in and out of the property market many times since," he explained.

"In the dotcom bubble I was completely out and it is only since the bottoming out of the recession I have gone back in."

Mumford says that Quintain Estates is a company that offers cheap access to the London property market.

"Quintain Estates owns big slices of London around Wembley and the O2, which includes parts of the waterfront," he said.

"The share price is around 60p and asset value in the mid-90s. That land can only grow in value when the market eventually goes up."

Mumford holds 2 per cent of his fund in Quintain, making it the sixth-biggest position on the fund, which has 70 holdings.

The company was hit hard by the financial crash of 2008, but has made a couple of attempts at a recovery since then.

Its shares are now at their highest since 2008, having doubled in value since the summer of 2012, according to data from FE Analytics.

Performance of stock over 3yrs


Source: FE Analytics

In total, six funds hold Quintain Estates in their top-10, including the Henderson UK & Irish Smaller Companies portfolio.

Another company Mumford owns is Grainger Estates, which he describes as the biggest residential property company in the UK.

The share price is at 140p and NAV at 300p, representing a 53 per cent discount, Mumford explains.

"Rentals are going up and if you get increases in property values on their portfolio, which is in London and the south east, you are going to get a growth in income and it’s an attractively rated share."

Capital & Regional, a small cap stock that owns shopping malls, is another one he holds.

"The share price is around 35p and the NAV at 55p, which is an absolute snip," Mumford says.

Grainger has seen its share price rise by 44.97 per cent in a year, according to data from FE Analytics, while Capital & Regional has seen a more modest rise of 9.52 per cent.

Performance of stocks over 1yr


Source: FE Analytics

He also rates London & Associated Property very highly.

"Eighty-five per cent of its assets are in town centres in London, Windsor and Sheffield, and 78 per cent are income-producing," he explained.

"The share price is about 28p and last year the asset value was in the 50s. When the figures come out this year they are likely to be at around 98p. If you are spending 28p to get assets worth 98p on retail property, that’s a good proposition."

Mumford’s portfolio is less concentrated than many of his peers, and he says this allows him to take positions in sectors that some may see as risky.

"I have 70 stocks in my portfolio so I can have 1.5 per cent in each property company and only lose a penny ha’penny in the pound if one blows up."

Although Cavendish Opportunities sits in IMA UK All Companies, it is a small cap portfolio and best compared with funds in that sector.

Mumford’s £83m fund has done well relative to other such funds and its benchmark since the market crash of 2008.

Over five years it has made 69.36 per cent compared with the 34.54 per cent of the FTSE Small Cap (ex IT) index, according to data from FE Analytics.

Performance of fund vs index and sector over 5yrs


Source: FE Analytics

It has also significantly outperformed both the index and the IMA UK Smaller Companies sector over the past three years.

Cavendish Opportunities requires a minimum initial investment of £2,500 and has ongoing charges of 1.58 per cent.

Mumford has headed up the fund since 1 February 1988.

Our data shows it has made 1,114.4 per cent since then, compared with just 387.46 per cent from the the FTSE Small Cap (ex IT) index.

Yesterday FE Trustnet heard the case for investing in mining stocks – another contrarian play in the UK market.

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Data provided by FE. Care has been taken to ensure that the information is correct, but FE neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.

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