The TM home investor fund can be invested in on a stand-alone basis, or as part of a diversified portfolio
TM home investor fund is an affordable, tax efficient investment in carefully selected UK private rented houses and flats. Using professional buying power and expert residential property management, the TM home investor fund aims to deliver rental returns and capture UK house price growth so your clients can enjoy the investment returns of Private Rented Sector residential property whatever their budget.
Through the fund, you can diversify clients’ investments by allocating part of the portfolio to a, familiar asset class that has low correlation to equities, bonds and commercial property.
TM home investor fund has a track record since 2012 of delivering attractive returns with low volatility.
You can apply to cash-in your client’s investment in retail share/unit classes on any UK business day and, under normal circumstances, the deal will be settled on a standard T+4 basis.
Institutional class redemptions only deal on the first day of a calendar quarter with a notice period. (Note that while retail classes are deemed non-complex for MiFID II, institutional classes are deemed complex because of the redemption restrictions). Please contact us for more information.
In unusual market conditions, there may be a delay in withdrawing money if properties need to be sold. However, liquidity of residential property is typically much higher than commercial property due to far smaller unit values and the greater number of transactions that take place in the residential market. To further reduce this risk, the fund aims to hold 10% to 15% of assets in cash and other liquid assets and has a steady stream of rental income that can be used to meet redemptions in the short term. The fund buys properties outright with cash and does not use gearing, so there’s no debt to be serviced by the cash held by the fund.
You can invest in the fund directly or through a SIPP, ISA, Junior ISA or Lifetime ISA via many investment platforms. A guide to platform availability can be downloaded from the library.
Application forms are also available in the library section. These can be used for direct investment, and by non-platform SIPP trustees or ISA Plan Managers.
The standard minimum investment levels for the retail classes are £50 per month or £1,000 lump sum. These minimums are usually waived via platforms to allow for rebalancing and adviser/platform fees.
There is no upper limit for private individuals but, as the fund is a PAIF, no single corporate investor can hold more than 9% of the PAIF’s shares. Corporate investors who wish to invest larger amounts may do so via the feeder fund.
As residential property tends to have low correlation with other mainstream asset classes, the TM home investor fund can provide a useful way of diversifying your clients’ wider investment portfolios. There are many institutional investors who have invested pension fund money for this very reason.
Investment in the TM home investor fund can also be useful for clients with a particular goal in mind: first time buyers saving for a house deposit, parents and grandparents wanting to help children onto the property ladder, expats aiming to keep a toe in the UK housing market, people looking for a hassle-free alternative to buy-to-let, retirees seeking a regular income – as well as other more general investment aims.
The TM home investor fund buys flats and houses of various sizes, which are then rented to families, individuals and companies. The properties are spread across England, Scotland and Wales and broadly reflect the UK (excluding Northern Ireland) housing market in terms of regional distribution and property type but, as an actively managed fund, Hearthstone has flexibility to select only stock that is expected to positively impact the portfolio performance and increase the likelihood of outperforming the fund’s benchmark.
Properties are selected on a long term ‘buy and hold’ strategy, although the fund has the flexibility to divest under-performing parts of the portfolio, as well as scaling up others. Hearthstone favours new or modern properties to keep maintenance and management costs as low as possible, and chooses homes that will attract long-term tenants in strong performing rental locations with an active re-sale market to maximise investor returns.
It aims to hold at least 85% of the portfolio in residential property, with the remaining 10% to 15% in cash and cash liquidity funds in order to meet day to day redemption requests. All properties are bought outright with cash, so there’s no debt to service and no risk of breaching lending covenants.
The fund may temporarily deviate from the above allocations should investment circumstances dictate. PAIF investment and borrowing restrictions also apply and are outlined in the prospectus which can be downloaded from the library.
Yes. Many of the mainstream SIPP trustees already hold the fund.
TM home investor fund satisfies HMRC’s definition of a ‘genuinely diverse commercial vehicle’ (information on their website here https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm125400#IDANC0MD) and, as such, can be held in a SIPP without triggering unauthorised payment charges or scheme sanction charges.
As well as having access to good quality independent research, Hearthstone undertakes its own analysis and research for a combination of reasons:
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:
We believe this approach leads to better-informed investment decisions
The team’s sell disciplines are essentially the opposite of their acquisition selection criteria. We will sell a property if we believe one of the following applies:
As a PAIF, all of the fund’s income from property investment is exempt from corporation tax, which would normally be payable by an OEIC at 20%. This makes the fund very efficient for tax purposes and the investor is taxed upon the PAIF assets more or less as if they held those assets directly. This is particularly attractive for those investors holding the fund within tax-advantaged wrappers such as SIPP or ISA.
Although the unit trust feeder fund doesn’t have the same corporation tax exemption enjoyed by the PAIF, it can also be held in a SIPP or ISA.
See the prospectus for more detailed information on taxation within the fund and taxation in the hands of the investor. This can be downloaded from the library.
Retail classes (PAIF classes A to D and the Feeder Fund) allow subscription and redemption on any UK business day. The retail classes are ‘non-complex’ for MiFID II purposes.
Institutional classes (PAIF classes E to G) can also be purchased daily. However, redemptions are restricted to the first business day of a calendar quarter, with 1 month prior notice to redeem class G, and 3 months to redeem classes E or F. The institutional classes are ‘complex’ for MiFID II purposes on account of their limited redemption terms.
Ethical investing is a broad term and can have different meanings for different people, but the fund only invests in houses and flats which are mostly rented by individuals and families. Other than cash and cash liquidity funds, it does not invest in any other assets or companies.
Hearthstone is committed to providing excellent accommodation and landlord services to its broad range of tenants. In a market where a significant minority of rented homes fail to meet Decent Homes Standards, we believe the fund meets an important social need.
The Fund’s Environmental, Social and Governance (EG) credentials have resulted in it being awarded a 3-star ESG rating by 3D Investing, powered by Ethical Money. You can download the report here and you can find out more at www.3dinvesting.com.
This presentation describes the TM home investor fund, with the objective of allowing retail clients to gain an overview of the product’s recent history. It should not be considered advice or an invitation to invest.
As with all investing, your capital is at risk. The value of your portfolio with TM home investor fund can go down as well as up and you may get back less than you invest. LEARN MORE ABOUT RISK.
Hearthstone Investments Ltd is the parent company of the Hearthstone Investments Group. Regulated business is carried out by Hearthstone Asset Management Limited. Hearthstone Asset Management Limited is an appointed representative of Thesis Asset Management Limited which is authorised and regulated by the Financial Conduct Authority (114354). Hearthstone Investments Ltd (06379066) and Hearthstone Asset Management Limited (07458920) are both registered in England and Wales. The registered office for both companies is c/o Waterstone Company Secretaries Ltd Third Floor, 5 St. Bride Street, London, United Kingdom, EC4A 4AS. Thesis Unit Trust Management Limited is the Authorised Corporate Director of the TM home investor fund. Authorised and regulated by the Financial Conduct Authority (186882).