From February 2025, HFMC Asset Management will consolidate its Core range of model portfolios, removing the distinction between those “including property” and “excluding property.” This decision is part of an ongoing effort to simplify and enhance our portfolio offerings while aligning with industry best practices. By streamlining the Core range to mirror the structure of our Passive and Positive Impact portfolios, we are confident this change will better serve our clients’ long-term interests.
Characterising: The Evolution of Property as an Asset Class
The inclusion of property within HFMC Asset Management portfolios has a long history, dating back to the introduction of our discretionary business in 2010. At that time, a significant number of clients held specialist property funds, to the extent that there were good reasons to offer a distinction between an ‘including property’ and ‘excluding property’ portfolios. This is no longer the case.
Historically, the Core portfolios invested in UK-listed, regulated, daily dealt property funds, focusing primarily on physical bricks-and-mortar property funds. These funds were valued for their relative stability but were not without challenges. Buying and selling physical buildings takes time, making these funds vulnerable during periods of heightened investor withdrawals. This was starkly demonstrated during two major events: the EU Referendum in 2016 and the property market uncertainty of 2019. In both cases, bricks-and-mortar funds were forced to suspend dealing, locking investors out of their capital.
In response, we no longer felt bricks and mortar property funds were acceptable for client portfolios, choosing instead to only invest small amounts in real estate investment trusts (REITs). Unlike bricks-and-mortar funds, which directly invest in physical properties, REITs invest in the shares of property rental businesses, which whilst offering greater liquidity and adaptability, also display more volatility. This has led to a significant reduction in property allocations within the “including property” models—from a peak of 14% to the current level of 2-3%—as we now prioritise broader diversification, such as global infrastructure funds.
Consolidating: Why Now?
The primary driver of this consolidation is the realisation that the distinction between “including property” and “excluding property” models no longer adds meaningful client value or differences to client investment outcomes. In fact, the difference in performance outcomes has diminished significantly, as the asset allocation mix of the two types of portfolios have merged closer and closer together.
Moreover, maintaining two separate model ranges adds complexity without delivering benefits to clients. Streamlining the Core range into a unified offering ensures consistency, transparency, and simplicity.
Carrying out the Plan: What It Means For You
From February next year, we will no longer offer ‘including’ and ‘excluding’ property options in the Core range of portfolios. Instead, we will consolidate both and offer a more flexible portfolio that can either invest in property or not. This will depend on whether your portfolio management team believe it is sensible to do so given the potential risks and return. Each portfolio risk profile will remain appropriate for the selected risk profile, for example a ‘balanced’ risk portfolio will remain ‘balanced’ risk.
If you currently hold a portfolio within the Core range, you will automatically be transitioned to the equivalent unified model for your risk profile.
While there may be slight timing variations depending on the platform your portfolio is held on, we are committed to making this transition as smooth as possible. Importantly, we will not charge any additional fees as part of this change.
You may notice a brief period where your funds are out of the market while they are sold and reinvested, but this will occur within the regular rebalance schedule to minimise the impact.
Communicating Clearly: Keeping You Informed
We understand the importance of clear communication during this transition. We sent an initial letter to all our clients in December 2024 explaining the changes and the reasons behind them, followed by a reminder in January 2025. Additionally, a copy of this article will be provided on our website. www.hfmcam.com/portfolio-changes
For most of our clients, the unified portfolio will be the best fit moving forward. However, if you prefer to retain a portfolio that excludes property entirely, you will have the option to move to an advisory relationship.
From February, all new clients will be invested to the unified model for their selected risk profile. We currently envisage this will include a modest amount of REIT exposure, which as mentioned above are equity investments in property-related companies.
Committing to the Future
The consolidation of our Core range reflects the changing nature of how we select property investments as we seek to build long-term, risk appropriate investment solutions for you, our clients.
At the same time, we will align portfolios to the reality of a changed marketplace for property investing in 2024 and beyond, as well as with needs of our clients.
These changes seek to reinforce our dedication to serving our clients’ best interests with clarity, confidence, and care.
