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IMA looks at major shake-up of sectors

The Investment Management Association is conducting the biggest review of its fund sectors in a decade amid the substantial impact of Ucits III and the RDR.

It is discussing how to accommodate funds that use wider Ucits III or non-Ucits retail scheme powers to hold alternative assets, many of which are not covered by sector definitions.

The investigation covers funds that hold derivatives but are housed in conventional equity or bond sectors and those that invest partly in property, commodities, private equity or hedge funds but are included in the managed sectors.

The IMA has asked members which share classes they should use to monitor performance, particularly given the expected proliferation in share classes after the RDR.

It is also considering introducing a tool on its website next year that would enable visitors to sub-divide its sectors. Data providers and print publications could publish these sub-divided versions.

The IMA says it will relaunch the website in September to make it easier for users to sort through its database. It will consider breaking up the UK all companies sector. It is the biggest sector and contains a particularly disparate range of funds, including all-cap, large-cap and mid-cap vehicles and several funds with special aims or strategies.

Director for markets Jane Lowe says she recognises the industry is using the sectors in a way that differs from their broad objectives. For instance, fund groups are using the international equity and managed sectors to house income funds, although the sectors were designed to incorporate growth remits.

The industry also compares the performance of individual funds and their sectors, although their sectors may contain funds with widely differing objectives. Introducing search features to sort through sectors might help to reduce confusion.

Lowe says she acknowledges it can be difficult to find data on the website and describes the overhaul as “only the starting point on the consumer end”. She says the IMA has already talked about creating separate income sectors for Europe ex UK and global equ-ity funds but received “a more disappointing response than we expected” on global equity income in particular. Some global equity income funds have also not consistently met income targets, she adds.

“The focus on UK equity inc-ome is not sufficient but we do need a starting universe. People like to put things in the title but do not do it in practice,” says Lowe.

The IMA has looked at creating a commodities sector but abandoned the idea as funds’ strategies varied widely. “The aim is to keep these sectors large and robust,” she says.

The review raises questions about how the sectors could be sub-divided in the absence of splits. Breaking peer groups down consistently by investment objective could create a range of sub-sectors as opposed to categorising based on performance and investment strategy which vary more widely.

Sub-sectors with around 10 funds or more could include UK all cap, UK mid cap, UK large cap, UK equity growth & income and UK all-cap ethical from the UK all companies sector; and Europe ex UK income, global income, cautious managed income, China, India, Latin America, Environmental, UK property, global property, absolute return equity, absolute return bond and absolute return multi-asset from the other sectors.

To preserve consistency across peer groups where performance data is compared, more divergent funds could also be rehoused in the specialist sector.


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