While the Investment Association’s decision to split its property sector category will make it easier for advisers to compare information, they will still need to review the funds carefully, commentators warn.
The Investment Association is dividing its property sector into separate UK Direct Property and Property Other sectors from 1 September.
Hearthstone Investments fund manager Alan Collett welcomes the decision as it will make it much easier for investors and advisers to research different options when investing in property funds.
He says: “Currently the sector is like comparing apples with pears, with bricks and mortar property funds sitting alongside those that invest in property securities. These two types of funds have completely different performance and risk characteristics.”
However, he warns advisers and investors will still need to review the funds carefully.
He says: “Even within the new UK Direct Property sector, there will be significant variation. Some are balanced funds investing across a range of commercial property types.”
He adds: “Understanding the composition of a fund is therefore crucial before making direct comparisons, even between bricks and mortar products.”
The UK Direct Property sector will include funds that invest directly in UK property, including commercial and residential property, as well as student accommodation, leisure and healthcare assets.
Funds in the sector will need to invest an average of at least 70 per cent of their assets directly in UK property over five-year rolling periods. Those that invest less than 70 per cent of their assets in direct property for any continuous 12-month period or fall below 60 per cent for any month may be removed.
The Property Other sector will include property funds that do not meet the requirements of UK direct property sector, such as those which invest in property securities, direct funds with a specialist mandate and hybrid funds.
They will have to invest in an average of at least 70 per cent of their assets directly in property over five-year rolling periods but do not meet the requirements of the UK Direct Property sector; or
- Invest at least 80 per cent of their assets in property securities; or
- Invest at least 80 per cent in a mixture of direct property and property securities