IA property shake up buoys bricks and mortar investors

IA property shake up buoys bricks and mortar investors

Investors are set to win from an Investment Association (IA) decision to split its property sectors, as it is expected to make comparisons between the performance of various real estate funds easier.

The IA today (13 June) announced  it will split the existing IA Property classification of 49 funds into two, the IA Property Direct and IA Property Other sector, both being introduced from I September.

Darius McDermott, managing director at Chelsea Financial Services, described the change as “good news” and said it would make performance comparisons “easier for all".

Galina Dimitrova, director of Investment and Capital Markets at the IA said the creation of a UK Direct Property sector will help savers and their advisers find information on funds investing in bricks and mortar assets based in the UK, and allow for like-for-like review of this asset type.

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. 

The Property Other sector will accommodate 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. The number of funds will be reduced, making it easier for investors to conduct due diligence on this smaller pool of funds.

Alan Collett, a fund manager at Hearthstone Investments, which invests in residential property, said the firm welcomed the split.

"It will provide more clarity to investors and advisers looking at investing in property funds.

"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.

“Splitting these funds into a UK Direct Property sector and a Property Other sector will make it much easier for investors and advisers to research different options.  

"However, investors will still need to review the funds carefully.

"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.  

"Others target specialist sectors like student accommodation, leisure and healthcare property - including Hearthstone’s residential property fund. Understanding the composition of a fund is therefore crucial before making direct comparisons, even between bricks and mortar products.”