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FAQs

Popular FAQs

What are the initial charges and OCF?

The retail share classes in the main (PAIF) fund have an estimated OCF of 1.61%, and the unit trust feeder fund 1.71%. These details are correct as at 13th July 2018.

There is no initial charge for the unbundled retail classes.

A full list of available share/unit classes and their charging structures can be found in the library section of this site.

The retail share classes in the main (PAIF) fund have an estimated OCF of 1.61%, and the unit trust feeder fund 1.71%. These details are correct as at 13th July 2018. There is no initial charge for ...

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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

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 ...

Read more

How do you select properties to buy?

Hearthstone searches for locations offering good rental demand as well as strong underlying owner occupier demand. We use data from a leading housing research consultancy, and through our corporate stakeholders, Places for People and Connells Group, we also have access to the trends in rental performance of over 20,000 managed residential properties as well as “grass roots” sales and lettings data from over 500 estate agency branches.

 

For more information, see our FAQ “What is the investment process?

Hearthstone searches for locations offering good rental demand as well as strong underlying owner occupier demand. We use data from a leading housing research consultancy, and through our corporate st ...

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Can this be held in a SIPP?

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. 

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 htt ...

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What is the fund's legal structure?

TM home investor fund is a UK domiciled Open Ended Investment Company (OEIC), authorised by the Financial Conduct Authority as a Non-UCITS Retail Scheme (NURS), and has Property Authorised Investment Fund (PAIF) tax status. 

For platforms that cannot currently administer the three income streams reported by PAIFs, an Authorised Unit Trust feeder fund is also available.

As with most other authorised funds, both the PAIF and AUT feeder can be held in ISA, pension and bond wrappers.

TM home investor fund is a UK domiciled Open Ended Investment Company (OEIC), authorised by the Financial Conduct Authority as a Non-UCITS Retail Scheme (NURS), and has Property Authorised Investment ...

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Who is behind the TM home investor fund?

Hearthstone Asset Management Limited, a subsidiary of Hearthstone Investments plc (‘Hearthstone’) is the Property Investment Adviser to the fund.  Hearthstone is a residential property investment specialist, which was founded in 2009 as the UK’s first fund manager to focus solely on residential property. Supported by a highly experienced team, it has successfully brought a range of investment funds to market for both individual and corporate investors. Through close relationships with estate agents and housebuilders and careful property selection and management, Hearthstone aims to offer attractive, stable investment performance while providing excellent accommodation and landlord services to the growing number of households looking to rent.

The ‘TM’ in the fund’s name signifies that Thesis Unit Trust Management Limited (TUTMAN) is the fund’s Authorised Corporate Director and has overall responsibility for ensuring the fund is operated in accordance with the Financial Conduct Authority’s regulations.

National Westminster Bank Plc (NatWest) is the fund’s Depositary and is responsible for overseeing TUTMAN’s operation of the fund.  NatWest is also responsible for the safeguarding of the assets of the fund and protecting the interests of incoming, outgoing and continuing investors.

Hearthstone Asset Management Limited, a subsidiary of Hearthstone Investments plc (‘Hearthstone’) is the Property Investment Adviser to the fund.  Hearthstone is a residential property investment ...

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About Hearthstone

  • Why don’t you do commercial property?

    Hearthstone's expertise is in residential property investment. Although both are ‘bricks and mortar’, the two are very different and need different expertise and experience to get the best investment returns.

  • Who is behind the TM home investor fund?

    Hearthstone Asset Management Limited, a subsidiary of Hearthstone Investments plc (‘Hearthstone’) is the Property Investment Adviser to the fund.  Hearthstone is a residential property investment specialist, which was founded in 2009 as the UK’s first fund manager to focus solely on residential property. Supported by a highly experienced team, it has successfully brought a range of investment funds to market for both individual and corporate investors. Through close relationships with estate agents and housebuilders and careful property selection and management, Hearthstone aims to offer attractive, stable investment performance while providing excellent accommodation and landlord services to the growing number of households looking to rent.

    The ‘TM’ in the fund’s name signifies that Thesis Unit Trust Management Limited (TUTMAN) is the fund’s Authorised Corporate Director and has overall responsibility for ensuring the fund is operated in accordance with the Financial Conduct Authority’s regulations.

    National Westminster Bank Plc (NatWest) is the fund’s Depositary and is responsible for overseeing TUTMAN’s operation of the fund.  NatWest is also responsible for the safeguarding of the assets of the fund and protecting the interests of incoming, outgoing and continuing investors.

Regulation, Security, Data

  • Who audits the fund?

    The fund’s auditor is Grant Thornton UK LLP, 30 Finsbury Square, London EC2P 2YU.

    Reports and accounts are usually published in February (interim, to 31st Dec) and October (annual, to 30th June) each year, and can be downloaded from the library page on this website.

  • What happens to my investment if Hearthstone stops operating?

    The Authorised Corporate Director (Thesis Unit Trust Management Limited) and the Depositary (NatWest TDS) will decide how best to proceed to protect everyone’s investment in the Fund, and may appoint a new Property Investment Advisor. 

    If the fund is unable to meet its obligations, investors may be able to claim for any financial losses under the Financial Service Compensation Scheme, more details of which can be found at https://www.fscs.org.uk/ 

  • Is TM home investor fund FCA authorised?

    TM home investor fund is FCA authorised as a Non-UCITS Retail Scheme (NURS).

    Information on the fund’s authorised status can be found on the FCA register https://register.fca.org.uk/ using product reference number 578345 for the PAIF and 578346 for the unit trust feeder fund.

  • Is this Complex or Non-complex under MiFID II?

    Retail classes are non-complex.

    Institutional classes are deemed complex due to the fact they do not allow for daily redemption.

  • What is the fund's legal structure?

    TM home investor fund is a UK domiciled Open Ended Investment Company (OEIC), authorised by the Financial Conduct Authority as a Non-UCITS Retail Scheme (NURS), and has Property Authorised Investment Fund (PAIF) tax status. 

    For platforms that cannot currently administer the three income streams reported by PAIFs, an Authorised Unit Trust feeder fund is also available.

    As with most other authorised funds, both the PAIF and AUT feeder can be held in ISA, pension and bond wrappers.

The Fund

  • What are your sell disciplines?

    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:

    • it is no longer likely to produce sustained above average growth or provide an attractive yield
    • it no longer represents a ‘best fit’ within the overall balance of the portfolio
    • alternative stock is available in the same region that would exhibit superior return characteristics. 
  • 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

  • What are the benefits of the PAIF structure?

    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, ISA or Offshore Bond.

    Although the unit trust feeder fund doesn't have the same corporation tax exemption enjoyed by the PAIF, it can also be held in SIPP, ISA and Offshore Bond.

    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.

  • Is this a daily dealing fund?

    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.

  • Is TM home investor fund an ethical investment?

    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.

  • Do you use debt to purchase properties?

    No. All properties are purchased outright with cash. There are no mortgages on any of the properties, so the fund doesn’t risk breaching lending covenants.

  • Can this be held in a SIPP?

    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. 

  • What does the Fund invest in?

    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 underperforming 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.

  • What is TM home investor fund?

    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. 

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Properties

  • Who lives in the properties?

    Most of the fund’s properties are rented by people like you and me. Some are single, some are couples – with and without families. Some of the properties are still used as show homes by housebuilding firms, so those are rented from the fund by the builder.

  • How are the properties valued?

    Legislation for this type of fund means properties have to be carried out by an independent valuer. They visit every property at least every 12 months and provide a valuation following that physical inspection. For the other 11 months of the year, the independent valuer provides something called a ‘desktop valuation’ – meaning that they refer back to their last physical inspection and update the valuation according to information they have on properties changing hands in the local area. 

    However, property valuation is ultimately a matter of opinion rather than fact, and the price obtained when a property is sold may be higher or lower than its valuation.

  • Can investors choose which properties you invest in?

    No. All investors get investment exposure to all properties the fund owns.

    By choosing different property types across a variety of locations with a large number of tenants, Hearthstone’s highly experienced team is able to manage the investment risk for investors. We are specialists in residential property investment and through close relationships with estate agents and housebuilders, and careful property selection and management, we aim to secure the best properties at the lowest cost to offer attractive, stable investment performance. 

  • Can I view which properties you own?

    A selection of the properties can be found here.

    Please contact us for a more detailed breakdown of the portfolio.

  • How do you select properties to buy?

    Hearthstone searches for locations offering good rental demand as well as strong underlying owner occupier demand. We use data from a leading housing research consultancy, and through our corporate stakeholders, Places for People and Connells Group, we also have access to the trends in rental performance of over 20,000 managed residential properties as well as “grass roots” sales and lettings data from over 500 estate agency branches.

     

    For more information, see our FAQ “What is the investment process?

Investing in residential property

  • What are the benefits compared to buy-to-let?

    TM home investor fund offers greater diversification than buy-to-let, spreading the risk of property ownership across a large number of tenants, property types and locations, rather than it being concentrated in one or two properties in a single area. 

    As a large investor, the fund also has a proven track record of acquiring assets through bulk-purchases from developers at discounts to open market value, providing additional return to investors. Whilst discounts cannot be guaranteed on future acquisitions, many developers are prepared to enter into negotiations due to the merits of selling a number of properties to one reliable cash buyer instead of to a series of individual purchasers who may each need to arrange mortgage finance.

    The fund costs include all property management and maintenance as well as tenant liaison, making it hassle-free for investors, compared to a direct buy-to-let investment.

    Unlike buy-to-let, the fund can also be held in tax-advantaged wrappers such as SIPP, ISA and offshore bonds, and capital gains from direct investment in the fund are not subject to the 8% surcharge that applies to those from disposing of a buy-to-let property.

  • My client owns a property, why should they invest in this Fund too?

    Your client’s own home would not normally be considered to be part of their investable assets, and will usually have been purchased for reasons of lifestyle – not as an investment. The fund provides the opportunity to gain exposure to a broad range of professionally managed private rented sector properties, adding another asset class to their investment, ISA or pension portfolios.

    Total returns from private rented residential property have historically demonstrated low volatility and little correlation with other mainstream asset classes such as equities, fixed income and commercial property and can, therefore, add further diversification to a portfolio.

    Due to its scale, the fund is also able to spread the risk of property investment rather than being concentrated in one or two properties in a single area in the same way a typical buy-to-let investor may be. 

    TM home investor fund invests in flats and houses of various sizes across England, Scotland and Wales to broadly reflect the UK (excluding Northern Ireland) housing market in terms of regional distribution and property type. 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. 

    The fund can also be used to meet specific objectives, such as inheritance tax planning where a client wants to gift amounts to a child or grandchild with the aim of helping them on to the property ladder.

  • What are the benefits of residential property compared to commercial property?

    Residential property investment is very different to commercial property investment and needs different expertise and experience. 

    In general, residential property provides:

    • Diversification - low correlation to other mainstream asset classes, including commercial property, regardless of investment cycle
    • Improved liquidity – Whilst liquidity risk will exist for any property fund, it is generally easier to sell a house than a large commercial property as the residential market is larger and more active and with lower lot sizes.
    • Greater resilience of rental income during market downturns 
  • How risky is residential property investment?

    Properties, like most other things, can go up or down in value. The value of the investment is very much dependent on the value of properties in the fund, so that can go up or down in value too. Property can also take time to sell and, although the fund does usually hold enough cash to enable investors to withdraw their money, delays may occur if properties need to be sold. Investors should always read the Key Investor Information Document before investing.

    TM home investor fund invests in UK private rented property, which has a long history of providing low volatility across different economic cycles and low correlation to equities, bonds and commercial property in economic downturns. There are also a number of ways which the Fund managers minimise property risk compared to direct property ownership:

    • No mortgages are secured on the properties, so the fund cannot end up in negative equity or in breach of lending covenants. 
    • It invests in houses across a variety of locations and property types, and a large number of tenants, which spreads the risk.
    • Hearthstone is able to work closely with agents and developers to secure the best properties at the lowest cost to the fund.
    • Preference is for new or modern properties, and to maintain and manage them to attract reliable long-term tenants.
  • What happens if property prices fall?

    As the value of the fund is very much determined by the value of the properties it owns, if values of those properties fall, so will the value of the fund. TM home investor fund doesn't use borrowed money to buy properties - they are all bought outright for cash.

    Income from rents and any cash held by the fund may offset the fall in property values by some degree

    However, the fund is not a ‘tracker’, and will not fully replicate any House Price Index (HPI). Average house prices reported by the various HPIs can differ significantly, and reflect the dataset used in their calculations – which can often be skewed by high-value properties in prime central London, or from using a small sample of data.

    Hearthstone’s team of residential property experts invests in a range of property types across the UK, particularly seeking areas where they believe house prices and private rents will increase in value. UK residential property has a long history of providing attractive, stable returns, but house prices do fluctuate, and the Fund should be considered as a medium to long term investment of at least five years.

Fees, Tax, Returns

  • How is share price calculated?

    TM home investor fund is forward priced and the share price is calculated as at 10:30pm every day by the fund’s accountant, Northern Trust. The starting point is to add up the value of all the fund’s properties and cash, take away fund and property management expenses, and divide the result by the number of shares in issue. 

    However, if the fund has more new investors coming in (and so expects to buy more properties), there will be an upward adjustment to the share price (known as ‘offer pricing’) to allow for the costs of buying the new properties. If the fund has more investors leaving (and expects to have to sell properties to meet redemptions), there will be a downward adjustment to the share price (known as ‘bid pricing’). These ‘bid’ and ‘offer’ pricing adjustments aim to ensure the fund’s existing investors don’t suffer the costs of buying or selling properties caused by other investors coming into or leaving the fund. At times the fund is neither growing or contracting, it may price on a ‘mid’ basis as it does not expect to incur any transaction costs on properties in the near-term.

    The current range of the potential swing in pricing basis can be found in the prospectus which can be downloaded from the library page.

  • Can income be automatically reinvested?

    All retail classes are accumulation, so the income is automatically reinvested and rolled-up in the share or unit price. There are currently no retail income classes available. 

  • Will investors ever be required to put in more money to cover costs etc?

    No. The cash held by the fund and the rent from lettings covers these costs, so investors will not be asked to invest more to cover this.

  • What’s the track record?

    The fund was launched in July 2012 and has a track record of providing attractive returns with low volatility, and with little correlation to other mainstream asset classes. The latest performance figures can be found on the fund factsheets which can be downloaded here, or via the usual data vendors such as Morningstar and Financial Express

    Please note that the fund was originally named the ‘TM Hearthstone UK Residential Property Fund’, but changed to ‘TM home investor fund’ on 13th July 2018. Some historical information or data on other websites may still refer to the previous fund name.

    Hearthstone also has a proven track record of institutional and pension fund investments in the sector. 

    It’s important to remember that returns are not guaranteed, and that past performance should not be used as a reliable guide to future performance.

  • What are the tax benefits?

    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 relevant for those investors holding the fund within tax-advantaged wrappers such as SIPP, ISA or Offshore Bond.

    Whilst the unit trust feeder fund doesn't have the same corporation tax exemption enjoyed by the PAIF share classes, it can also be held in SIPP, ISA and Offshore Bond. 

    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.

  • What are the initial charges and OCF?

    The retail share classes in the main (PAIF) fund have an estimated OCF of 1.61%, and the unit trust feeder fund 1.71%. These details are correct as at 13th July 2018.

    There is no initial charge for the unbundled retail classes.

    A full list of available share/unit classes and their charging structures can be found in the library section of this site.

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Contact the Hearthstone team for information on TM home investor fund

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