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SWIP Property Trust - Rating upgraded

Sustained capital growth has returned to UK commercial property. The most recent data (for the month to end November 2013) was the seventh consecutive month of capital growth. The monthly rate of growth is increasing - November saw a 0.9% increase in values, the highest monthly rise since March 2010. On top of this, income return from property has been stable at 0.6% pcm, so total return is 1.5% pcm.

Capital values had been falling since September 2011. Back then this triggered us to switch our high conviction ratings away from UK physical property and into funds investing in global property shares; being invested in shares this also added equity risk to some portfolios. The prospects for UK commercial property are now more concrete and managers forecast 9-10% total return for 2013 and 10-12% for 2014. So we have reversed our stance, reducing our conviction in funds of property shares and increasing the rating of our preferred physical property funds.

Physical property is also a better diversifier for mixed asset portfolios than property securities which will always have some level of correlation to broader equity markets.

The SWIP Property Trust is managed by Gerry Ferguson who has nearly 40 years’ of property experience. He will stay on once Aberdeen completes the takeover of SWIP, which should be in February 2014. Gerry and his 40-strong real estate team are key assets for Aberdeen who do not have a physical property fund. We believe that he will be the new head of real estate at Aberdeen. The fund itself is already £2.5 billion in size and taking in over £1m per day. It is nearly 80% invested in direct property, owns more than 100 properties and pays a 2.9% dividend yield.

We have increased our rating of the SWIP Property Trust from three stars to four stars.

The property market is illiquid and this can, in exceptional circumstances, lead to times in which clients are unable to dispose of part or all of their holding. Property valuations are made by independent agents but are ultimately subjective and a matter of judgement.