The Investment Association (IA) is to divide its Property category into separate UK Direct Property and Property Other sectors from 1 September 2018, following a consultation with members and the Association of Real Estate Funds, Investment Week has learned.
The IA's Sectors Committee made the decision to split the 62-strong sector, which has attracted criticism in the past, in the hope of making comparisons easier for investors.
Galina Dimitrova, director of investment and capital markets at the IA, explained: "The creation of a UK Direct Property sector will make it easier for savers and their advisers to find information on funds investing in bricks and mortar assets based in the UK and make like for like comparisons on this asset type."
Specifically, the new UK Direct Property sector will include funds investing 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% of their assets directly in UK property over five-year rolling periods. Those failing to invest at least 70% of their assets in direct property for any continuous 12-month period, or fall below 60% for any month, may be removed from the sector.
Meanwhile, the Property Other sector will include funds that do not meet the criteria for the UK Direct Property sector, such as those investing in property securities, direct funds with a specialist mandate, and hybrid funds.
The IA said the Property Other sector will "continue to offer a breadth of property fund types", although the number of funds will be reduced, "making it easier for investors to conduct due diligence on this smaller pool of funds".
Funds in the sector must invest "predominantly" in property that is not UK direct property. To meet this criteria, they must invest an average of at least 70% of their assets directly in property over 5- year rolling periods but do not meet the requirements of the UK Direct Property sector; or
• Invest at least 80% of their assets in property securities; or
• Invest at least 80% in a mixture of direct property and property securities.
The existing IA Property sector definition includes funds which invest at least 60% of their assets directly in property, or invest at least 80% of their assets in property securities, or when their direct property holdings fall below the 60% threshold for a period of more than six months, invest sufficient of the balance of their assets in property securities to ensure that at least 80% of the fund is invested in property, whereupon it becomes a hybrid fund.
As of 31 May, the IA Property sector has returned 5%, 18.8% and 38.9% over one year, three years and five years respectively.
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