"The correlation to equities is somewhat coincidental, with the main problem being that the market now demands a bigger yield premium than it did on obviously much higher risk-free rates, that is, it needs 8 per cent, not 5 per cent.
"It then adds a 'nobody will ever go to an office building or shop again' additional discount. We believe discounts will narrow and [net asset values] will rise, particularly in the more attractive areas such as beds, sheds and meds. This will probably not occur until interest rates start coming down.
"We only invest in trusts that hold direct property; property securities funds are too generalist and expensive.”
Yearsley says that while the returns from property investment trusts are correlated with equity returns in the short-term, “over the long term, the returns are similar to those available in property, so the diversification element reasserts itself.”
David Thorpe is investment editor of FTAdviser
