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Compared to other asset classes

In this section we compare residential property with other asset classes.
 


Much of the data on this page was originally compiled in 2012 to illustrate the reasons for launching the TM Hearthstone UK Residential Property Fund. Investors can now find actual fund performance since launch in the fund factsheets, but we feel this information remains relevant when viewed alongside actual performance as it provides a valuable historical insight as to the investment characteristics of residential property.
 

Residential property

Residential properties are essentially dwellings where people live – houses, bungalows, flats, apartments.  Access to this investment opportunity historically meant buying a property to rent out, often with a view to future profit on sale.
Over the last few decades, more and more people have benefitted from a positive housing market either because they have realised profit or are sitting on large amounts of equity.
 
Whilst it is true that residential property can be affected by the general economic outlook – as has been the case recently – it has benefitted from historically lower volatility and higher growth than other asset classes.
 
 The chart below also shows that residential property doesn't tend to react in the same way to economic factors as other asset classes do - it has a low correlation with the stock market, for example - which can have the effect of making investment portfolios containing residential property more stable than those that don’t.

 correlation-1.png


Commercial property

Commercial properties could be described as places where people work – offices, factories, industrial complexes, shops, shopping centres, leisure centres, some schools and hospitals. Direct investing tends to be the preserve of the large financial institutions, but there are some avenues for private investors to take advantage of this asset class, largely through a variety of commercial property funds available in the retail investment market
 
Commercial property values & yields  tend to be more affected by the general economic outlook. In periods of low economic activity, people have less to spend and companies may be in less need of employees and subsquent premises. Also, there are limited buyers for each property and the market is less liquid than that for residential property. For these reasons commercial property is generally considered a higher risk than residential property.


Resi-vs-commercial-1.png

Equities (Stocks and shares)

Buying shares in companies and ‘betting’ on the success of those companies can deliver significant rewards. But as recent evidence has shown, equities are affected - almost on a day-to-day basis - by influences far greater than national economic factors.
 
A positive economic outlook, a company’s excellent trading results, the appointment of a new sharp-shooter or the launch of an innovative product can make investments in stocks and shares soar.
 
By the same token, a change of Government, an armed conflict in the Middle East affecting oil supplies, or a negative public relations story can have the opposite effect.
 
For these reasons equities are considered a higher risk.

Risk-adjusted-TR-by-Asset-Class-over-time-je.jpg

 

The above chart shows risk adjusted returns for residential property compared to other asset classes. The chart indicates how property has historically delivered higher returns without additional risk compared to other assets.

Risk adjusted returns factor in the amount of risk taken to achieve a return – for more on this please see the Glossary

 

Fixed interest (Bonds and Gilts)

This type of investment is generally in the form of a Bond issued by a company, a Gilt issued by a government or an international organisation such as the European Central Bank.  Exposure to this market can also be  obtained via  fixed interest funds issued by  various fund management companies or banks  and building societies.
 
With a Bond, an investor to all intents and purposes ‘lends’ money to the issuer for a fixed percentage rate of return, over an agreed time period until maturity when the original capital is returned.

Fixed interest investments are considered as low risk overall. However the income paid usually reflects any underlying risk that the issuer may default. So generally the higher the income on a fixed interest security is the higher the market perceives the risk. Investors in bonds should be prepared to accept some risk as there is no guarantee of their capital should an issuer default.

UK Government gilts are usually rated lower risk than a corporate bond which isissued by a company.
 
 

Cash

Of all the popular asset classes, Cash is considered the lowest risk. This is reflected by the interest paid, and that interest is directly affected by interest rates. Most recently, UK interest rates have been at a historical low, putting pressure on savers as the returns on their savings are not keeping pace with inflation.
 
With cash, there is no increase in capital values unless interest received is reinvested into the cash holding.
 

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Hearthstone Investments PLC is the parent company of the Hearthstone Group. Regulated activities associated with the TM Hearthstone ICVC are carried out by Hearthstone Asset Management Limited, which is an authorised representative of Thesis Asset Management plc, authorised and regulated by the Financial Conduct Authority (114354). Other companies in the group provide investment advisory and other services funds aimed at professional clients. Details of these companies are provided in the investment materials associated with each fund.

Information in this website is presented for information purposes only. No information in this website should be treated as an invitation or inducement to invest in any particular investment product over another, nor as investment advice. If you are in doubt about whether a particular investment product described within this site suits your needs you should consult your Independent Financial Adviser. Neither Hearthstone Asset Management Limited or Thesis Asset Management PLC accept any responsibility for your use of this site other than in accordance with these terms.

Please note that future predictions/outlook observations are Hearthstone’s own views and do not guarantee they will come to fruition. Please also note past performance is not a guide to the future. 


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