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IFAs criticise IMA plan to scrap two equity sectors

The Investment Management Association plans to scrap the global equity & bond and global equity income sectors in a major overhaul of performance sector classifications.

Following a review by its performance category review committee, the IMA says both sectors should be abolished due to their lack of funds and the UK gilt sector should be split in half to reflect different fund return profiles.

The sectors would be hit because they fall within new criteria the IMA is proposing, in which sectors with fewer than 10 funds are culled but those with 10-20 funds of distinct character are given their own sector.

As the global equity & bond sector has fewer than 10 funds and has some overlap with managed sectors, the IMA says it would be scrapped and reclassified.

The global equity income sector would be abolished and its funds shifted into the global growth sector as the IMA says three of its four funds fail to yield over 110 per cent of the FTSE World index – the benchmark for the sector.

Gilts would be split because the IMA says the two types of funds show “remarkably” different return profiles over time. It suggests index-linked gilts are shown in a separate sector as it believes they represent a distinct asset class.

However, IFAs say the proposals would fail to deal with the sectors most in need of reclassification and may serve to confuse investors further.

Simpsons partner Andrew Merricks says: “I do not see why there has to be a magic number of 10 funds in a sector. It was only a few years ago that the technology sector only had two funds in it.

“The more sectors there are, the greater steer investors have to know what is – and is not – for them.”

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