"Private equity investments are certainly flavour of the month at present," says Moyes. He has singled out F&C Private Equity Investment Trust (FPEO) for selling in May, because "emotions run high in the highly volatile world of private equity investing, with share price performance flipping between euphoria and despair".
Moyes argues that while the management team have done well to lower financing costs, and de-risking the proposition following the fallout from the global financial crisis, "share price performance has surged ahead of underlying asset value, with the shares now trading on a premium, euphoria appears to be setting in".
I think the market is simply taking a realistic view on UK commercial property.
I hold FCPT for the income, but I'm expecting some more capital erosion.
I posted here several months ago voicing my concerns that the premium was unjustifiably high - at the time it was nudging 10%. I suggested that on a one year/18 month view, the share price would have to fall back as the market started discounting the sector's future prospects.
Today FCPT trades at a small discount - so that's 10% taken out of the share price right there.
In part the challenge is the rise in interest rates, albeit gentle rises. But demand is undeniably softening for UK commercial property too and property valuations are at multi year highs. The online battering that high streets and retail parks are taking -and to a lesser extent, shopping centres too, is yet another headwind.
So I don't think we will see much in the way of share price rises in FCPT over the next year. I also own Picton Property Income and it has fallen back to a small discount too. My only property IT that is currently holding up is TR Property - but around half of its exposure is in Europe, which has helped the share price stay perkier.
I'm kicking myself that I passed on the recent Aberdeen Standard European Logistics IPO. It's effectively a geared play on the growth in European online shopping; which for me is a more compelling proposition than the current UK Property Market right now.
If it doesn't jump to a silly premium when it begins trading I think it's worth considering.
I have held both for many years starting with FCRE (in fact its predecessor.)
To me they are a good balance. FCRE has more regional and industrial/supply chain focus, whereas FCPT is more London/SE and premium / office. Both have a good yield, stable prices and are not over-geared. FCRE was a little out of favour over last decade as focus was on London offices, but more recently has returned to favour, so the balance works.
FCPT is the larger trust and also pays divis monthly (will be useful one day). It also started diversifying by buying space in Aberdeen some years back.
I intend to stick with both, adding monthly to FCPT
Conversely, could there be an argument that having larger and more premium locations MAY be a real disadvantage if Brexit doesn't go well and financial passporting isn't as good as the city expects? ANY company / share that has high expectations attached to it and disappoints in some way is getting hammered...eg SFE, Provident financial, etc. I accept that property is one step removed in that it is physical property and ultimately it will probably recover (as post brevet vote) but is that concentration in London and the SE not making it a touch higher risk?
I suppose both our thoughts are what make a market. I keep thinking of adding PT but can never find eoug of a positive differentiator to actually do it!
I hold small and equal investments in both having not found a pressing reason to select one over the other
My understanding of the higher yield of RE Vs PT which is also reflected as a slight discount to NAV for the RE vs slight premium for PT is PT is perceived as lower risk. PT is about 4 times the mkt cap of PE.
I saw in an old piece on Morningstar that PT portfolio is seen as having more and larger premium location properties. RE has smaller higher yield properties, some in less attractive locations, so may be vulnerable if the market dips. (RE still has some prime London buildings).
Looking back to 2007, through the crisis, RE price has under-performed, it also reacted slightly more than PT to the Brexit vote panic, but has recovered well.
I think both worth holding, RE would be first I'd sell if I got concerned about the commercial property market.
I would be grateful for anyones thoughts as to why they choose / chose this over FCRE......which I have held for quite some time and am very happy with. Every time "tips" for a property trust come up they seem to include FCPT.
Is it because of the premium of FCRE, or the monthly divis here? Or perhaps the geographical or nature of holdings? I doubt it is because of the yield or the performance which are both better with FCRE, so what am I missing ?
I tend to agree with you. Maybe the B of E will increase the interest rate by 0.25% soon but I doubt it will be any higher. I think the issue to look out for is a sudden spike in inflation. I turn my attention to the US which has a debt pile roughly ten times that of the UK standing at around $20trillion. Similarly, the US will not be able to service its debt with interest rates any higher than 3%. So a sudden hike in inflation would result in pandemonium.
Looking further ahead, the central banks need to encourage a rise in inflation in order to reduce the debt pile in real terms. It doesn't look like QE is going to achieve this but no doubt they will keep trying. If it doesn't, then what? Maybe we will return to some sort of gold backed currency system. Not quite the gold standard but gold related. One thing is for sure, the central banks will achieve inflation one way or another. I have bought some physical gold as a hedge and insurance.
Hello Casa, thank you for the hint, I will have a closer look.
Hello Percentagewise, also thanks for your toughts. I tend to agree that bonds should be avoided atm since some sort of interest rate rise is highly likely to happen and the lever on Bonds is huge.
Regarding the recent drop in FCPT. What are the rumours on the street?
Has the latest NAV assessment been downgraded or is it the fear of looming interest rate rises.
I have a kind of weird theory here and would really appreciate your opinion.
In principle, any interest rate rises above 0.75% are unafordable for the UK government since it would become close to impossible to serve the additional interest on the ~1.8 Billion £ debt.
https://www.economicshelp.org/blog/334/uk-economy/uk-national-debt/ equating to around 88% of GDP.
In fact inflation above 3% is very much welcome and the only way to burn the debt, really.
An increase of 1% in the BOE rate would equate to an ADDITIONAL 18 Billion £ of debt which would push the additional government deficit ending March 2017 from 52 to 70 Billion and then way above the 3% deficit mark.
My hunch is that the BOE will have to increase interest rates in December 2017 not November 2017 simply because it has to in order to retain a minimum degree of credibility.
I also suspect that the BOE has to raise interest rates further despite the fact that an inflation rate between 3-4.5% would be a blessing for the state deficit.
The reason for having to raise the BOE rate is that the BOE ran out of amunition some years ago when it might need it soon.
If the hard Brexit happens and I fear it might, then the BOE needs to be able to react and act. At a base rate of 0.25% that is not possible.
My guess is therefore that it will increase the base rate to 1-1.25 % (maximum) over the next 15 months. Thereafter it will have to drop since the debt would just not be serviceable.
I feel that bricks and mortar in trusts such as FCPT are seemingly an unpopular choice atm similarily to Bonds. I tend to hope that it is a good insurance against inflation and widely spread investment ( apart from being based in the UK , only )
Is FCPT cheap and is it time to accumulate or has it further to drop?
I've heard good things about Twenty Four as a fund manager specialising in high yield. My only concern about them is their focus on fixed interest. I am currently cutting sharply my exposure to bonds - the overwhelming consensus seems to be that they are even more overvalued than shares! My hope is that good REITS like FCPT are a safer high yield play than fixed interest
I was having a look at FCPT with a view to topping up due to the sp falling to under 142. I noticed your message and thought you might be interested in a Twenty Four Fund called the Select Monthly Income Fund which I have held for at least two years. It pays a monthly income of 0.50p like FCPT but the sp is around the £1 mark. This equates to an approximate dividend of 6% annually. I have done a more detailed description on the VFIF board, quoting information from a Money Week article done by Max King last week.
Jim Phelps, of Mission Imposible fame, contains SPDR S&P UK Dividend Aristocrats UCITS ETF links, articles etc and this is where I'll be heading if we get a swift sell off. I've got cash available to take a full position in 2 trades.
Roger, of Far Side, contains similar on VOD, AV, REC, HHI, UEM, PEY, OCN, MKLW & NAIT all stuff I'm keen to add to if the opportunity arises. Or buy in the case of MKLW. And this stock of course.
That probabley doesn't make sense, but I use a Mac Book and fun icon'd folders is somewhat of a Mac tradition.
I also remain interested in STAN and Elementis.. Again on an opportunity to add.
Presently I'm adding on weakness, making cash and £ averaging on ISF & IUDK ( a small amount each month) and I have a small portfolio with a 2nd provider. That small portfolio generates just a couple of £00's a month, so I used a £1.50 regualar investment plan to add IUKP each month as well. Between those 3 I will take up my full ISA if something else doesnt appeal more.
....and if the wheels really fall off I'll be buying IUSA, IWRD and 2nd hand VCT's - I ike VCT's when there are distressed sellers, what's not to like about a 13% yield and 40% discount to NAV, that was just the ticket in '09.
You can just buy the world with IWRD. What could possibly go wrong....
Glad to see that I am not the only one watching FCPT. Great dividend stock and I imagine slightly lower than average risk due to large tenant base.
I do not see BOE interest rate rise beyond 0.5 -0.75 over the next three years from the current level. It is simply unaffordable to serve more state debt.
I reckon that in 1,2,3 years dividend yields of 3% will be the top of the range and therefore I do see a bit potential upwards for FCPT over the next 5 years. 180 - 200 in 2022 perhaps + yearly dividends - that is a very nice savings plan it seems.
Nice drop today to 145.5 ! I am buying some more. I wonder whether FCPT moves up back to 147/148/149 over the next two weeks again for investors to secure the dividend? Everyone who has sold today and does not really need the cash will have to think where to invest the money again...
I also hold HICL and CNA.
Do you have a few more recommendations ?
I am also looking at "megatrends" and am speculating that car parking stocks might be more in demand since all the electric and self driving cars will need to be charged and maintained somewhere in city centres.
Large car parking providers might become the petrol stations and service stations of the future = added business. Has anyone an opinion on that thought ?
I hold for the dividend. I bought a significant dollop of these 6 months ago when the share price was around 5% lower than currently. In that time, any upwards swings in share price seem to be driven mainly from an increasing premium rather than a growing NAV.
Not sure there will be much capital growth in these for c12-18 months. Sadly, the income squeeze pushing up all dividend paying assets means that FCPT isn't as safe an investment as it used to be. But then if you are looking for income, I'm not sure if there are any relatively safe assets out there at the moment.
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