Jupiter comments on 2006 Budget

Anthony Nutt, manager of Jupiter's flagship Income Trust, welcomed the Chancellor's more flexible stance towards the creation of viable UK Real Estate Investment Trusts (REITs).

"The Barker Report highlighted the importance of introducing supply side measures to facilitate the creation of new affordable housing. But investors were concerned that a demanding minimum level of 2.5x interest cover would mean many property companies would require fund raising in order to convert to a REIT. There were also concerns that the requirement to distribute 95% of profits as dividend could have compromised the fiduciary duties of REIT directors.

"The consultation period for the Barker Report ended last month and the Chancellor seems to have taken on most of the industry's recommendations that UK REITs be similar to those in already operating in the US, Australia, the Netherlands, France and Japan, e.g. only 90% of profits will be required to be distributed.

"A new, lower limit of 1.25x times interest cover is welcome, with shares in Hammerson, Land Securities, British Land and other quoted property companies rallying by over 10% on the news. It will now be easier for UK REITs to borrow to invest and I would expect to see gearing levels to settle at a modest 35%-40% after introduction in January 2007.

"This is, of course, good news for investors in income funds as there will soon be an additional source of attractive dividend income from real estate assets whose underlying fundamentals move in a separate cycle to the equity market."

The Budget report was also positive for green investors, according to Charlie Thomas, manager of the Jupiter Ecology Fund. He argued that while the increased vehicle excise duty on large cars and the reduction for less polluting cars was anticipated, the Budget also included a climate change focus which will have the potential to affect current and future investments in the Jupiter Ecology Fund.

Charlie Thomas added: "Gordon Brown's commitment to increase funding into the DTI Low Carbon Buildings Programme will encourage manufacturers in microgeneration. I feel that this is positive, as companies in which we invest that are involved in solar heating and small-scale wind power will be natural beneficiaries. While there are currently few listed companies in this area, we anticipate that this will change as new companies come to the market.

"The agreement between the power generators and the government to insulate a further 250,000 houses could also have a positive impact on insulation providers such as SIG.

"The extension of biofuel duty incentive of 20p per litre to 2008/9 sets a longer term framework for companies involved in biofuels production. However, while the extension is useful, it is not yet clear how much it will truly influence the target of 3.75% penetration of biofuel by 2010.

"While we welcome this new direction, I believe that Gordon Brown missed an opportunity to tackle the current water shortages in the UK, particularly in the South-East."