Britain’s equity markets and currency have been dipping as the country grapples with the Brexit debate.
The good news for investors is the debate is creating opportunities to buy strong companies at discounted prices, particularly in the real estate sector, says Chip McKinley, senior vice-president and portfolio manager with Cohen & Steers in New York and manager of the Renaissance Global Real Estate Fund.
“In the last few months, investor confidence has been damaged because of the growing possibility of the country voting to leave the Eurozone,” he says. “I think it’s likely that would be a very negative event, not just for equity markets but also for the economy and the British pound.”
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But McKinley doesn’t believe Britain will leave the European Union. Further, he finds “the U.K. economy is on solid footing even though it’s decelerating.”
In particular, he says the underlying fundamental drivers of real estate are strong. “This is a unique opportunity where we can pick up more exposure to a property sector that’s performing strongly. [It’s] abnormally cheap due to a very transitional and ultimately negligible risk.”
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McKinley says examples of undervalued property companies based in Britain include:
- Hammerson, which is “an owner and developer of high-quality retail shopping centres and malls, primarily in the London metro area.”
- SEGRO, which is “an owner and developer of logistics and warehouse space” in Britain and western Europe.
He favours these two companies because they “trade at very large discounts to fair value [and] exhibit strong year-over-year cash-flow growth expectations. They’ve been beaten up because of this concern [over Brexit], but that ultimately will dissipate at Brexit is voted down.”
This story originally appeared on the site of our sister publication Advisor.