Hibernian Investment Managers, Ireland’s best performing pension fund manager over the last year, recommends that Irish investors with significant exposure to the buy-to- let residential property market should consider diversifying into the Hibernian High Yield Equity Fund.
Hibernian Investment Managers, Ireland’s best performing pension fund manager over the last year, recommends that Irish investors with significant exposure to the buy-to-let residential property market should consider diversifying into the Hibernian High Yield Equity Fund.
A new report out this week from Hibernian Investment Managers (HIM) reviews the fundamentals behind the Irish buy-to let market and reveals some stark findings when buy-to let investment is compared to the Hibernian High Yield Equity Fund.
The report examines risks facing the buy-to-let market such as the prospect of rising mortgage interest rates, falling rental incomes and significant entry costs such as stamp duty and management charges. In addition, there are significant increases in supply with over 80,000 new homes expected to be built in 2004, a 16% increase on last year, which is likely to put pressure on capital values.
According to James Forbes, senior investment strategist at HIM: "Complacency exists in the Irish buy-to-let market and the prospects for significant capital appreciation have diminished rapidly. Valuations in the Irish buy-to-let market are extremely stretched when compared to other assets. We would consider high yield equity stocks an excellent alternative as these stocks are typically less volatile than conventional equities. Company balance sheets are awash with cash thereby enabling companies to increase payouts at double digit levels over the next three to five years"
The Hibernian High Yield Equity Fund, which was the first of its type to be launched in the Irish market, comprises about 40 stocks with an emphasis on large well-established companies and each with an equal weighting in the fund. The fund is also diversified in terms of geography and sectors. The Hibernian High Yield Fund is currently yielding around 3.8%, which is around 50% greater than global markets.
"Our research reveals that high yield equity stocks in the US have outperformed the overall market by 3% per annum between 1961-2003. We believe they are likely to continue to do so," said James Forbes. "Large well-established companies are generating more cash than they need for day to day business expansion. This excess cash is likely to be used to enhance shareholder returns in the form of share buy backs or increased dividends."
The Hibernian High Yield Equity Fund has outperformed global equity markets by over 20% since it was launched in February 2001. "We expected the fund to out perform during the bear markets in 2001 and 2002, and it has also continued to out perform since 2003 when global markets have risen by over 15%".
Since 1998, rents have only increased by around 5% per annum and in fact rents in Dublin have fallen by 17% over the last two years. If one contrasts this, for example, to the dividend growth of AIB, one of the stocks in the fund. AIB has consistently increased its dividend payment each year. In fact, between 1998 and 2003, AIB increased its dividend by over 15% per annum.
James Forbes concluded: "In addition to the investment case for high yield equities over buy to let investments, investors should be aware that the costs involved of investing in buy-to-let properties such as stamp duty and legal fees etc are significantly higher than the fund management charges within the Hibernian High Yield Equity Fund".
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Press contact:
Kela O’Riordan, 01 617 8164, 086 606 8842
kela.oriordan@hibernian.ie
Notes to editors:
- Hibernian Investment Managers is one of Ireland’s largest fund managers, with current assets under management of over €8 billion. The company is based in the IFSC
- HIM is the asset management arm of the Hibernian Group in Ireland
- Hibernian is Ireland’s largest composite insurer, ranked first for general insurance and top five for life and pensions and is part of Aviva plc globally
- The report is available in hard copy or pdf format
- Hibernian news releases are also available on www.hibernian.ie