Ian Cowie: the investment trust I sold, but swiftly rebought

Life is what happens while we are making other plans, as the musical genius John Lennon mused, so prophetically. Coming down from the clouds of art and philosophy to the commerce of stock markets, let this DIY investor confess my latest howler.

An unexpected and urgent need for cash forced me to sell my shares in Tritax Eurobox (LSE: EBOX), the sterling currency version of an investment trust that specialises in continental warehouses to store all the stuff we buy online. The high-yielding shares had fallen from fashion, as interest rates rose elsewhere, and fetched just 54p each when I sold in March, compared to the 66p I paid for them in December 2022. Interactive investor offers the European currency version: Tritax EuroBox Euro Ord (LSE:BOXE).

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That wasn't quite as bad as it sounds because EBOX delivered a dividend yield, currently running at 7.2%, and tax-free income in my ISA during that 15-month period. Even so, I resented how personal circumstances had forced me to bail out of this investment which, like 50-odd others in my modest portfolio, I had intended to hold forever.

So, after a recent reshuffle to raise cash, I have restored EBOX to my ISA, paying 59p per share earlier this month. No, I am not happy about missing that 9% uplift in the price but hope this won't matter much over the medium to long term.

My reasoning remains that e-commerce or online shopping is likely to grow in future, as more of us discover its convenience and cost-cutting potential, not to mention more entertaining things to do at the weekend than traipsing around bricks and mortar retailers. In that sense, EBOX is a classic investment trust, offering exposure to a specialist sector where only the wealthiest individual could otherwise gain a stake.

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The underlying assets are 23 largely automated warehouses, diversified across distribution and population centres on the Continent with 43% of rental income arising in Germany; 14% in Spain; 13% in Italy; 12% in the Netherlands, and 11% in Belgium. Poland and Sweden account for the rest.

To give an idea of what these warehouses are like, the 2023 annual report says that EBOX’s property in Bönen, Germany, has 4,000 quick response (QR) or machine-readable codes embedded in the floor, forming the guidance system for 140 robots to navigate around the site, automating the process by which stuff is stored and sent to buyers. Better still, the robots don’t get bored, take lengthy loo breaks or “liberate” any of the goods.

Nearly nine in 10 EBOX warehouses were built during the last decade, 76% have rental income secured for five years or more and 97% of leases include some element of annual uplift. Corporate customers include Amazon, Puma and Lidl.

While I have sympathy for folk who have to work in these digital depots, this sounds like the future of e-commerce logistics, whether we like it or not. So, EBOX shares currently priced 30% below their net asset value (NAV) appeal to this bargain-seeker.

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Nothing fades as fast as financial fashion - or yesterday’s idea of what tomorrow might look like - and this sector has been shunned by many investors since interest rates - and thus the income obtainable elsewhere - began to rise from historic lows. The Association of Investment Companies (AIC) “Property: Europe” sector average destroyed nearly 10% of shareholders’ capital over the last year, after wiping out another 31% over the last five years, according to independent statisticians Morningstar.

Against that dismal backdrop, EBOX does not look too bad. It is the top performer among four funds in its sector over the last year, having lost less than 1% of shareholders’ money, following a 21% “negative total return” over the last five years. Big isn’t always beautiful but EBOX has total assets of more than £1.5 billion and is the largest trust in “Property: Europe”.

Schroder European Real Estate Inv Trust (LSE:SERE) is the only other investment trust in this sector that offers a higher yield, currently a shade above 9%, priced at an eye-stretching 39% discount to NAV. However, that follows capital losses of 19% in the last year and 11% over the last five years.

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The explanation is SERE’s very different underlying portfolio of luxury shopping malls and urban office blocks. Both asset classes  have been hit by the rise of e-commerce and working from home.

Braver souls than me might see an opportunity to bet against these trends by buying SERE, but I suspect both retail trends are based on changes in technology that are more likely to accelerate than reverse.

For example, like many workers today, I am writing this in my own home rather than in an office owned by a pension fund. If I take time out for food and drink, it will be in my kitchen or sitting room, rather than a City centre restaurant where everyone is on an expense account.

As an investor who aims to own a share in the future and be paid to be patient while we wait for it to arrive, EBOX ticks both boxes for me.

Ian Cowie is a freelance contributor and not a direct employee of interactive investor.

Ian Cowie is a shareholder in Tritax Eurobox (EBOX) as part of a globally diversified portfolio of investment trusts and other shares.