Over the course of January 2025, the NAV of the Fund increased by 1.1% (A Acc GBP), compared to the UK Real Estate Index* which has increased by 2.5%. Since its launch, the Fund has decreased by 8.9% (A Acc GBP), outperforming the UK Real Estate Index* which has fallen by 22.9% 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 (19.8% portfolio weight), digitalisation (40.0% portfolio weight), generation rent (26.8% portfolio weight), and urbanisation (7.1% 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.

With UK inflation slowing, the Bank of England voted to cut interest rates to 4.5% from 4.75% in their first meeting of the year. The Bank of England also halved their growth estimate, with the UK economy now expected to grow by 0.75% in 2025, down from its previous estimate of 1.5%. Prime Minister Sir Keir Starmer said he was "not satisfied with growth" and the downgraded forecast "just spurs us on". UK consumer confidence also fell sharply in January to the lowest level in more than a year, primarily due to the rise in government borrowing costs and warnings of job cuts, which took a toll on economic sentiment.

Despite 10-year gilt yields reaching an intra-month high of c.4.9%, gilts rallied at the end of the month, driven by weaker macroeconomic data; UK inflation rate came in at 2.5% year-on-year in December, which was lower than expected, and the unemployment rate came in at 4.4%, which was higher than expected. The Investment Manager believes there continues to be divergence between the broad recovery seen in the direct property market and the weak share prices of UK-listed REITs, which have been driven instead by macroeconomic variables.

The strongest performing mega trend in January was digitalisation, which increased by 1.7%**. This was followed by the ageing population mega trend, which increased by 0.4%** and the generation rent mega trend, which increased by 0.4%**. The urbanisation mega trend decreased by 0.1%** during the month.

In the generation rent mega trend, Unite Group (portfolio weight 7.4%), an owner, manager and developer of purpose-built student accommodation in the UK, released a strong trading update in the period. They are expecting 97-98% occupancy, with 5% rental growth, and have also sold 66% of beds for the 2025/26 academic year. Joe Lister, CEO of Unite Group, said, “The outlook for student numbers remains positive with a growing UK 18-year-old population and improving trends in international student recruitment given a more settled policy backdrop in recent months. This supports our confidence in delivering full occupancy and rental growth of 4-5% for the 2025/26 academic year.”

In the digitalisation megatrend, Tritax BigBox (portfolio weight 7.3%), a REIT that invests in distribution centres, announced it is developing a new data centre in the UK. It also released a trading update for 2024, which included a £22.7 million increase in contracted rents. This was more than the £15.4 million increase reported in 2023, and occurred via acquisitions, development lettings, rent reviews and asset management. Tritax BigBox also announced increased rent reversion of 26.1%, which was up from 23.0% in 2023. Colin Godfrey, CEO of Tritax BigBox, said of the announcement, “We enter 2025 with growing confidence, driven by improving occupational market conditions, our expanded range of growth drivers - which now include highly accretive data centre developments - and enabled by ongoing investment in our high-calibre team, dedicated to achieving continued success for Tritax BigBox."

In the digitalisation mega trend, Safestore Holdings (portfolio weight 4.7%), one of the largest providers of self-storage units in the UK and Europe, announced their full year results for 2024. While their revenue, like-for-like occupancy and rates were all down slightly year-on-year, Safestore opened 10 new stores and extensions in the year, and have a development pipeline of 26 stores. This is equivalent to 16% of the portfolio and has the potential to add £35-40 million of future EBITDA in 2029, which is an increase of c.26-30%, or c.5.5% per year until 2029. Additionally, following the year end, Safestore entered into a joint venture to acquire the Easy-box self-storage business in Italy.

The UK REIT sector is poised for growth in the coming months. As interest rates continue to ease globally, credit spreads decline, property valuation yields plateau and rents increase, valuations are expected to climb higher as new supply takes time to emerge. 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 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