Fund in Focus - BMO UK Property
An interview with: Guy Clover, Fund Manager
Who is the fund manager?
My name is Guy Clover, I am the fund manager of BMO UK Property Fund. The fund currently comprises around 600 million pounds of assets across 57 buildings. I qualified as a charter surveyor 30 years ago and I've run this fund from inception back in 2010, I have seen the fund grow over the last 8 years or so.
Why should investors consider property in their fund?
Property sits nicely in a portfolio between corporate bonds and equities, equities providing a bit more spice and volatility, corporate bonds provide a steady income with a very low income currently. Property yielding around 5% provides the opportunity to get a high and steady level of income because the property tends to be let on longer-term leases, therefore you're likely to be getting your income stream regularly from the occupiers of the building which then feeds through to the funds. It tends to get used as part of a diversified portfolio, where you might have 50-60% of the funds in equities, 30-40% of the funds in corporate bonds and 10-20% in UK commercial property, delivering consistent income and capital growth over a period.
What makes the BMO UK Property Fund different?
The BMO UK Property fund is different from other funds, partly due to the investor base. The fund was very much designed for the wealth management community, but also, we buy similar lot sizes, smaller buildings which are easier to downturn. We are not compromising on quality, buying good institutional quality buildings up and down the UK. We have buildings in Aberdeen all the way down to Cornwall, we are not just central London focused, with big offices in the city or west end, we are very much more a diversified fund across the UK.
What is your outlook for UK property?
This is something we are constantly reviewing because the market does change depending on the UK outlook, and that impacts on rental growth. The nice thing about UK commercial property is the steady income stream, the outlook over the next few years is mainly focused on that income stream, delivering 4-5% income return from the portfolios.
The outlook for the UK is challenging for the retail sector and shopping centres, some shopping centres we feel could go down 15-20% in value over the next few years. The challenge of Brexit and what that might mean for central London also could mean below bar performance in that area.
What are your prospects for the British high street?
The British high street is going through some tough times, and that looks set to continue. These tough times aren't due to consumer spending, as spending is on the rise, people are just shopping in a different way. You can order online at most places on your mobile phone which can be delivered to your door within 24 hours, you also have an abundance of choice by searching online rather than going to a specific shop and only seeing a few products. With the shift of online retailing the British high street will continue to suffer, but as ever there will be winners and losers. Winners will be locations like cathedral towns and cities where people still want to shop for the experience, you can go to the cinema or to a restaurant. The standard high street up and down the UK will change dramatically over the next 5 -10 years. The industrial market has been performing well with rental growth coming through abundance, that is a positive impact from the demise of the high street. The BMO UK Property fund has a high weighting to the industrial logistics sector which means its well set to weather the storm and is a sub 10% exposure to the British high street currently.
It is important that no actions should be taken without first taking advice. Personal circumstances and an individual’s appetite for risk means that the advice for one person may not be the same for everyone. Please remember that the value of your investment can go down as well as up, and may be worth less than you paid in. Information is based on our understanding at 20.11.2018.