Over the course of February 2025, the NAV of the Fund remained flat at 0% (A Acc GBP), compared to the UK Real Estate Index* which decreased by 1.09%. Since its launch, the Fund has decreased by 8.9% (A Acc GBP), outperforming the UK Real Estate Index* which has fallen by 23.7% in the same period.

The strategy of the Fund is to invest in a diversified portfolio of thematic real assets. The Fund’s 20 investments are set to benefit from four socio-economic mega trends: ageing population (20.2% portfolio weight), digitalisation (44.9% portfolio weight), generation rent (28.2% portfolio weight), and urbanisation (5.5% portfolio weight).

Within each mega trend, the Investment Manager undertakes fundamental research to identify the most attractive investment opportunities. Combining top-down analysis of socio-economic mega trends with bottom-up fundamental research has yielded good results for the Fund.

Whilst the Bank of England voted to cut interest rates in the UK to 4.5% in February, growth concerns persisted amid a stagnating economy and uncertainty over international trade. Bank of England expectations are now for the economy to grow by 0.75% this year, half its November forecast of 1.5%. Andrew Bailey, Governor of the Bank of England, said, “We now expect GDP growth to be notably weaker in the near term before picking up from the middle of the year”. Meanwhile, UK inflation rose to a 10-month high of 3.0% in January, up from 2.5% in December.

The strongest performing mega trend in January was ageing population, which increased by 0.8%**. This was followed by digitalisation which increased by 0.4%**. Generation rent and urbanisation delivered negative returns.

M&A activity continued during the month, with two potential offers for assets in the fund’s portfolio. Assura, (portfolio weight 4.9%), an owner and developer of healthcare properties across the UK, announced that KKR and USS had submitted four indicative non-binding proposals for a potential cash offer at a 28.2% premium to the undisturbed share price. This offer was rejected by Assura’s board and, following month end, KKR has come back with an updated bid of 49.4p per share, a 2.9% increase on the previous bid of 48p per share and a 31.9% premium to the undisturbed share price. Warehouse REIT, (portfolio weight 5.1%), a specialist warehouse investor in the UK, announced that Blackstone and Sixth Street Partners submitted a fourth all cash proposal to the board of Warehouse at a premium of 34.1% to the closing share price. Warehouse rejected the offer, “on the basis that it materially undervalues Warehouse REIT.”

In the digitalisation mega trend, Segro (portfolio weight 7.1%), released positive FY24 results, with earnings up 5.5% year-on-year. Dividend per share was up 5.4% on the year, and the loan-to-value ratio was down from 34% to 28%. David Sleath, CEO of Segro, said, “Having seen conversations with occupiers pick up pace in recent weeks, we expect leasing and pre-letting activity to increase. This would support attractive, compounding earnings and dividend growth in the medium-term, with significant additional value upside from our data centre pipeline.”

Also in the digitalisation mega trend, Unite Group (portfolio weight 7.1%), the UK's largest owner, manager and developer of purpose-built student accommodation, announced a positive outlook for 2025 in their FY24 results, with an increase in EPS of 5.2%, and fall in LTV from 28.0% to 24.0%. Like-for-like rents also increased and were up 8.2% with growth across direct-let and nominated beds. While occupancy was down slightly on the year from 99.8% to 97.5%, the decrease reflects a normalisation, and their occupancy is still above the sector average of c.94%.

Tritax BigBox, (portfolio weight 7.3%), a REIT that invests in "Big Box" distribution centres, also announced strong FY24 results. Contracted rent was up 39.1%, and adjusted EPS was up 3.9% year-on-year. This was primarily driven by like-for-like rental growth, rental reversion capture and rent added from development completions. They also signed £11.6 million of new leases in FY24, at levels 12.5% above prior rents. Chairman of Tritax BigBox, Aubrey Adams, said, “We enter 2025 well positioned with three powerful growth drivers in our business: capturing record rental reversion, advancing our highly attractive logistics development pipeline, and leveraging opportunities to develop data centres with the potential for exceptional returns.”

The UK REIT sector is poised for growth in the coming months, shown through the continued M&A activity in the sector. As interest rates continue to ease globally, credit spreads decline, property valuation yields plateau and rents increase, valuations are expected to climb higher. We are at a pivotal point for the asset class, with greater investment needed in specialist listed real estate to respond to social and economic changes and increased demographic shifts. While growth concerns continue to impact capital markets, the four socio-economic mega trends - ageing population, digitalisation, generation rent and urbanisation - are set to gain. There is reason for increased optimism across these mega trends as the Fund is set to benefit from increased M&A activity, steadying valuations, high occupancy, strong rental growth and rental reversion.

*MSCI UK IMI Core Real Estate Net Total Return GBP
**Defined as the calendar month, as opposed to the valuation month