S&W managed portfolio moves into student property as UK opens up

Property prices have not yet recovered from their precipitous plunge during the coronavirus pandemic.

This has not gone unnoticed at Smith & Williamson. The wealth manager has taken advantage of suppressed prices with a recent addition to its managed portfolio service (MPS).

Last quarter the firm added the Empiric Student Property Reit to its defensive and defensive income models to take advantage of a large discount to net asset value in commercial property valuations.

James Burns, co-manager of the MPS, said Smith & Williamson has been underweight property for much of the crisis, but is now back to a neutral weighting on the asset class after adding the fund.

He added: ‘It is a UK Reit investing in premium student accommodation in prime locations in the UK, and the student accommodation story is backed up by long-term structural dynamics.

‘If the easing of lockdown restrictions continues, as we believe it will, then this investment will benefit from students returning to university in September of this year. We would then expect the discount to narrow significantly.

‘As Empiric is a closed-ended fund, we are able to access the sector without facing the gating issue that some open-ended property funds have been facing.’

The trust’s share price roughly halved between mid-February and November last year, from £1.04 to 54p, but has since bounced back to 89p.

Burns said its management team, led by chief executive Duncan Garrood, was quick to reduce costs to compensate for falling occupancy rates. The fund also suspended its dividend to preserve cash, but Burns believes payments of around 5% could be restored later this year.

Another bricks-and-mortar fund held in the MPS for a much longer period is Picton Property Income. Together with the Empiric Reit, it brings total property exposure for the portfolios to 5%.

‘Picton gives the portfolios broad exposure to the UK property market as it recovers, and it has the advantage of being nimble within the property space due to its size, so we are very comfortable with that position,’ Burns said.