Beyond the human suffering, the COVID-19 pandemic had far-reaching consequences for numerous sectors, particularly the real estate sector. Some market segments are still searching for a new equilibrium. Unlike the 2007-2008 crisis, attention this time has been less focused on the housing market and more on commercial real estate.
For example, the office market was impacted by changes in work patterns after COVID-19. As if that were not enough, concerns over refinancing emerged in 2022 when interest rates rose sharply. These changes brought both challenges and opportunities for managers of (listed) real estate portfolios.
Against this backdrop, we examine two investment funds in the Morningstar category Equities Sector Real Estate—Europe Indirect, which are qualitatively assessed by Morningstar analysts. We discuss the similarities and differences between the AXA WF Europe Real Estate and TR Property, an investment trust listed on the London Stock Exchange.
People
Both strategies are managed by two highly experienced managers, supported by strong teams. One team is based in London, while the other operates from Paris.
Marcus Phayre-Mudge, lead manager of TR Property, has been involved with this strategy since the late 1990s. He has a wealth of relevant real estate experience and an in-depth knowledge of European listed real estate companies. Frédéric Tempel, who has been with AXA since 1996 and has led the listed real estate team since 2003, can certainly compete with him. Tempel has built a stable team of experienced managers, organised by region. However, his growing responsibilities in personnel management and strategy, along with team changes, have recently led to a downgrade of the People rating from High to Above Average, while TR Property has retained its High rating.
Phayre-Mudge is supported by Alban Lhonneur and a well-equipped team of analysts and portfolio managers who bring strong expertise in both pan-European listed REITs and direct commercial real estate. The board of directors of the investment fund provides an additional layer of expertise. François-Xavier Aubry has managed the European strategy with Tempel since its launch. AXA’s listed real estate team consists of five portfolio managers and five analysts.
Both teams also have access to broader real estate analytical resources and capabilities. In the case of Phayre-Mudge, these are provided by Columbia Threadneedle Investments, following the acquisition of BMO Emea in 2021. However, Thames River Capital remains an independent entity under the CTI umbrella. Tempel’s team can rely on the local market knowledge of AXA’s private real estate investment group, which consists of ten analysts and a team of three real estate analysts.
Process
Both funds use the FTSE EPRA Nareit Developed Europe Index as their reference index. However, TR Property’s investment approach is unique, with a modest allocation to physical real estate, distinguishing it from competitors such as AXA, which focuses solely on listed names.
AXA employs a research-driven process with a long-term focus. Stock selection targets quality companies, while firms with weak governance or poor financial health are typically excluded. Stock analysis is thorough and focuses on sustainability, valuation, and catalysts.
The process of their London-based counterparts is also well-defined and based on the belief that listed real estate markets are inefficient and opaque, creating opportunities. Ideas stem from more than 400 company meetings per year and thorough field research.
Portfolio
At the end of 2024, TR Property’s allocation to physical real estate stood at around 6 percent of total assets, spread across a handful of properties in the UK. The rest of the portfolio, like AXA’s, mainly consists of real estate equities and REITs. The team has built an extensive research database covering the majority of the FTSE EPRA Nareit Developed Europe Capped Index. Additionally, TR Property’s team models a significant number of non-index and smallcap real estate companies.
AXA’s portfolio contains 40 positions compared to TR Property’s 65. Both funds had over half of their assets in their top ten holdings as of December 2024. AXA’s portfolio construction is primarily bottom-up driven, and country and subsector allocations remain well within the benchmark to ensure stock selection drives relative performance. Tempel maintained overweight positions in the residential and industrial/logistics subsectors and remains less positive about the outlook for office sector companies. AXA also allows for positions outside the benchmark, but these are carefully applied.
Performance
Both funds struggled in 2022, with losses exceeding 35 percent due to headwinds in the asset class. However, over the long term, the managers have clearly generated value for their investors through stock selection.
Over the past ten years, TR Property has performed strongly, with an annual return of 3.4 percent in euros, significantly outperforming both the average competitor (0.9 percent) and the category index (0.3 percent), as well as the AXA fund, which delivered a return of 1.1 percent. Since January 2009, when its investment universe expanded from the eurozone to Europe, AXA WF Europe Real Estate has achieved an average annual return of 7.9 percent in euros up to the end of January 2025. (Over the same period, TR Property achieved an average annual return of 9.8 percent.)
The cost structures of the two funds differ. TR Property charges a performance fee of 15 percent on outperformance of the benchmark plus 1 percent, whereas AXA does not. At the end of February 2025, the investment trust was trading at a discount of nearly 10 percent to its net asset value. It also pays a progressive dividend, with a payout ratio exceeding 90 percent and a current dividend yield of over 5 percent versus 2 percent for AXA’s F Dis EUR share class, which may appeal to some investors.
Thomas De Fauw is a manager research analyst at Morningstar. Morningstar analyses and rates investment funds based on quantitative and qualitative research. Morningstar is part of the expert panel of Investment Officer.