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IMA may link absolute return sector with managed sectors

The Investment Management Association says it may look to link the absolute return sector with the managed sector in a bid to categorise the risk level of funds.

Speaking at a recent investment seminar, IMA director of markets Jane Lowe said that now the absolute return sector was beginning to mature it was time to find its “permanent home in the sector scheme”.

The IMA launched the absolute return sector in 2008. Funds in the sector are asked to produce a positive return over a rolling 12 month period, regardless of the market cycle.

Lowe said: “One option may be to link the absolute Return sector with the managed sectors, indicating whether it sits at the more or less conservative end of the spectrum.  In the event that it was repositioned in this way, we would need to adjust the definition to reflect that. 

“The two criteria currently in use allow a range of risk characteristics to be gathered into the sector, whereas a more constrained focus would, for example, require a narrowing of permitted risk.”

Lowe said another option would be to place the absolute return sector within a group of alternative sectors.

“Although we have not put together any alternative sectors, there may well be future demand for sectors that are designed principally around outcomes rather than assets. I’m referring of course to so-called Newcits and the hedge fund categories,” Lowe adds.

Last month, Money Marketing revealed that the IMA is looking to split the absolute return sector into two separate sub-sectors covering one-year and three-year timeframes.

The move would allow funds with strategies that are designed to operate over a longer timeframe to retain their status as an absolute return offering rather than being placed in an alternative sector.

Money Marketing also revealed that the FSA is privately advising fund firms against using the term “absolute return” when launching new funds as it gives the impression that growth is guaranteed.

Last August, the IMA said funds not stating the aim to deliver an absolute return over a 12 month time frame in their fund literature could be kicked out of the sector. Morningstar figures show that six absolute return funds failed to outperform in 2010.

Lowe also said the IMA expects to do more work on the managed sectors and said the firm expected to reach firm conclusions about the future shape of the sector review scheme in the first quarter of 2011.

She said: “There will then be a second phase of work, in which we will conduct more in-depth research with the IFA community to gain their views as primary end users of the sectors.  We may also ask about sector naming, once we’re sure about the future of the sector scheme as a whole.”

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