The IA Property sector should be split between bricks & mortar funds and strategies investing in securities, according to industry experts.
Of the analysts FE Trustnet spoke with, all suggested breaking the sector up rather than leaving it untouched.
Restructuring the sector also proved popular among FE Trustnet readers, with IA Property securing the second-largest number of votes from last month’s poll.
When previously considering the IA Targeted Absolute Return, Mixed Investment and Strategic Bond sectors, it was clear that analysts were divided on how they should be reformed.
However, the IA Property sector appears to be the only sector under review where industry commentators had formed a consensus view.
They suggested that the sector be divided into two categories, those investing in property-related securities and those that buy and hold physical property (bricks & mortar funds).
Charles Stanley Direct pensions & investments analyst Rob Morgan added: “Property should be split into two – equity and physical – as the two have different characteristics and it would be a simple, clean break.”
Meanwhile, Martin Bamford managing director at Informed Choice, said the IA Property sector is in the greatest need of change of all the sectors in the IA universe. 
“As things stand, this sector contains a disparate group of funds ranging from true commercial property funds to those investing in the shares of property and land companies,” Bamford (pictured) said.
“As a firm which primarily recommends UK commercial property funds invested in bricks and mortar, it can be very difficult to compare performance of these funds to the sector.
“In some cases, property funds are developing their own adjusted benchmark figures, to only show how the peer group of UK bricks and mortar funds have performed.
“Funds invested in property shares have a very different volatility profile as well as different short to medium term performance, which can make the sector average look quite misleading.”
Indeed, as the below graph shows, when splitting the sector into two sections, the IA Property Securities sector – which includes funds that invest in real estate investment trusts (Reits) – has significantly outperformed the IA Property Bricks & Mortar sector over the past half-decade.
Performance of sectors over 5yrs
Source: FE Analytics
The IA Property Securities sector has returned 84.90 per cent over the last five years while the IA Property Bricks & Mortar sector has returned 27.40 per cent.
Of the 48 constituents in the IA Property sector, 25 would sit in the bricks and mortar category while 22 would sit in the securities sector if it was divided.
There is one fund that does not sit in either – HSBC Global Property – which is a fund of funds and therefore is a special circumstance.
Of the 36 funds in the IA Property sector with a track record of five years, none of the bricks & mortar funds sit in the top quartile.
Conversely, none of the funds in the securities sector sit in the bottom quartile of the wider sector over the period.
Below, we look at the two new prospective sectors in more detail and look at the funds that would and would not benefit from splitting the IA Property sector.
IA Property Bricks & Mortar
The IA Property Bricks & Mortar sector is made up of those funds that solely invest in physical property, be it commercial, residential or other, regardless of geography.
Overall, the top performing fund over the last five years, of the 17 funds with a long enough track record, has been the £290m Freehold Income Authorised fund.
The fund, run by Nigel Ashfield and Roger Skeldon acquires freehold ground rents in the UK, with 26 per cent of its rental value in London.
It has returned 53.68 per cent over the last five years, tops in the IA Property Bricks & Mortar sector, yet this places it in the third quartile in the wider IA Property sector.
It is also the only fund of the top three in the IA Property Bricks & Mortar sector to beat the IA Property sector average over the period.
Performance of funds vs sector over 5yrs
Source: FE Analytics
The second best fund in the new IA Property Bricks & Mortar sector is the £2.69bn L&G UK Property run by FE Alpha Manager Michael Barrie and Matt Jarvis.
The fund, which is 68.68 per cent invested in direct property and currently has 24.12 per cent in cash, has returned 43.08 per cent over the last five years but again sits in the third quartile of the wider IA Property sector.
The third top performer in the sector is Royal London Property run by Stephen Elliott, which has returned 42.34 per cent over the past five years.
The £400m fund currently has 39 holdings, and is predominantly invested in retail, offices and industrials, with four of its top 10 positions in London.
IA Property Securities
Meanwhile only two funds in the IA Property Securities sector have underperformed the wider IA Property sector over the same period.
The first is HC Charteris Property, which would be at the bottom of the new securities sector, having returned 43.22 per cent over the last half-decade
The £1.1m fund invests in a range of Reits with no geographical restrictions and is in the third quartile of the wider IA Property sector over the period.
The other fund is Standard Life Investments Global REIT run by Svitlana Gubriy which has returned 46.44 per cent over the last five years.
The £98m fund, which has 61 holdings, is 50.4 per cent weighted to US Reits.
Performance of funds vs sector over 5yrs
Source: FE Analytics
Also of note are the €12m BNY Mellon Global Property Securities and £58.5m Schroder Global Real Estate Securities Income.
The two funds are in the second quartile of the IA Property sector, having returned 65.06 and 63.19 per cent respectively, but fall to the fourth quartile of the IA Property Securities sector.
They have outperformed the IA Property sector average but all four funds have underperformed the IA Property Securities sector average over the period.