Deutsche's UK Retail Property Fund and Hermes' PUT produced returns of 7.6% and 7.5% respectively in the first six months, according to the latest figures compiled by IPD and published by the Association of Property Unit Trusts and HSBC. Both are top of their respective classes, Hermes among the balanced PUTs and Deutsche among the specialists, and both benefited from their above-average exposure to the top-performing retail sector. The third best of the 18 PUTs was another retail specialist, the Schroder Emerging Retail PUT, with a return of 6.3%.
Worst of the 18 was the only specialist office PUT, Deutsche UK Office Property Fund, which was hit by the weakness in the office sector. It produced a negative return of -3.3%.
The average return from the 18 PUTs in the first half was 3.7%, which was better than the 3.5% return from gilts but worse than the 6.4% increase in the Real Estate Index of property shares and the 6.3% rise in the All-Share Index. The PUT performance was dragged down by the largest fund, the £1.2bn Schroder Exempt PUT, which produced a below-average 2.2% in the first half.
Hermes was the best performer in the second quarter, generating a return of 5%. It was helped by the £7m profit it made from the £240m sale of Alban Gate in the City to Matrix Securities. Hermes invested £10m in 2001 for a 23% stake in the limited partnership, which owned the 400,000 sq ft (37,160 sq m) building. The regearing of the principal lease to JP Morgan Chase and subsequent sale released £17m for Hermes, reflecting an internal rate of return of 30% since acquisition.
Even without the Alban Gate factor Hermes would have been the best of the big five PUTs, Schroder (£1.2bn), Merrill Lynch (£897m), UBS Triton (£653m), Deutsche UK Managed (£597m) and Hermes (£405m).
All the PUTs benefited from a one-off gain from chancellor Gordon Brown's abolition of Stamp Duty in disadvantaged areas, which was introduced in April. Hermes has 20% of its £384m portfolio in disadvantaged areas.
Hermes fund manager Fiona Sweeney is in the final six months of a three-year strategy to transform the fortunes of the PUT. When she took over at the beginning of 2001, the PUT was underperforming the benchmark by 500 basis points. By June 2003 it was outperforming by 400 basis points on a year-to-year basis.