What is the investment process?
As well as having access to good quality independent research, Hearthstone undertakes its own analysis and research for a combination of reasons:
- to address the particular needs of the fund and its investment strategy;
- to consider residential property investment in the context of the broader real estate market and financial investment markets;
- to plug gaps in the information available from other sources;
- to assess the quality and accuracy of third party research; and
- to evaluate risks and to explore alternative investment scenarios.
We conduct both “top down” and “bottom up” research, focused where we believe it is most likely to add value. For example, as the fund’s strategy is to invest nationally in locations with strong tenant demand, a starting point for identifying market opportunities is our proprietary “hotspot” analysis, which compares market structures and longer term prospects for private rented residential property in each UK local authority area. This is a much more granular framework for investment decision-making than the standard national or regional market forecasts, and it specifically focuses on the dynamics of the private rented sector, which is the fund’s focus.
As well as property market variables (focusing on supply, demand and pricing indicators), our forecasts consider shifts in the demographic profile, local economic and employment prospects and developments in local infrastructure and community services.
Our hotspot analysis framework is used as a tool to assist with market selection, but our investment approach also needs to allow for the fact that every property asset is different: there will be poor assets in outwardly attractive markets, and potentially good opportunities in weaker ones. Each potential or existing asset is considered on its own merits, in the context of its local market and broader investment trends. Prospective purchases are subject to an initial screen to ensure that they conform to the fund’s stock selection criteria, with the strategy set out in the Investment Plan, and with the investment guidelines.
In considering individual locations and investments, detailed “on-the-ground” research is undertaken to understand local investment and occupational market conditions, and what each area is like as a place to live. Considerations include:
- letting and investment market supply and demand dynamics,
- current and potential competition, pricing,
- quality of social infrastructure and services,
- expected tenant profile,
- consumer attitudes,
- local employment structure and prospects, major employers, accessibility, and travel patterns.
We believe this approach leads to better-informed investment decisions