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IMA renames absolute return sector

Daniel Godfrey 2012 480
IMA chief executive Daniel Godfrey

The Investment Management Association has renamed the absolute return sector the “targeted absolute return sector” following its sector review.

The IMA has defined the targeted absolute return sector as funds managed with the aim of delivering positive returns in any market conditions, but returns are not guaranteed.

Funds in the sector may aim to achieve a return that is more demanding than a “greater than zero after fees objective”.

Funds in the sector must also clearly state the timeframe over which they aim to meet their stated objective to allow the IMA and investors to make a distinction between funds. This timeframe must not be longer than three years.

The IMA says renaming the absolute return sector to the targeted absolute return sector will “ensure there is no doubt that positive returns are a target and not a guarantee.”

The trade body plans to publish data to demonstrate how consistently each fund in the sector has produced positive returns over rolling one year periods. The IMA says its monitoring on a one year basis is separate to the fund’s maximum three year timeframe to meet its objectives.

It says it will monitor the sector to determine whether there should be rules that lead to the exclusion of funds from the sector on historic performance grounds.

The IMA will also create an online filtering tool to help users find and compare similar funds.

The change of name of the sector will come into effect on 1 June. Firms have until 20 May to confirm to the IMA whether they intend to remain within the sector and meet the new requirements or to request a reclassification to a new IMA sector.

IMA chief executive Daniel Godfrey says: “One key purpose of the absolute return sector review was to make sure consumers do not inadvertently perceive there to be some implicit guarantee of positive returns due to the name of the sector.  Adding the ‘targeted’ description to the sector name fulfils this purpose.

“We will continue to keep a close eye on the sector to see whether sub-groups could be created to further refine the value of our sector data for users.  We will also keep a close eye on performance and, should it become necessary, set performance criteria, which could lead to a fund’s expulsion from the sector on performance grounds.  The monitoring we have announced today will be an important tool in this regard.”

In May 2011, after its review of the managed funds sectors, the IMA said it would review the absolute return sector after it reached its third anniversary. The results were expected at the end of 2011, but this was repeatedly pushed back until now.

In June the trade body outlined three options for the absolute return sector as part of its consultation on the sector’s future.

Options under consideration at the time were to sub-divide the absolute return sector according to which funds were targeting more stable outcomes; sub-dividing the funds by hedge fund-style categories such as long/short or global macro strategies; or to keep the funds within a single sector but rename and redefine it.

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Comments

There are 12 comments at the moment, we would love to hear your opinion too.

  1. Excellent. Now all they need to do is rename Global Growth the Targeted Global Growth sector, and the Money Market sector, the Negative Real Return sector, and everyone will know where they stand.

    You would think there would be more constructive uses for peoples time.

  2. What a load of nonsense, as far as the IMA is concerned cautious does not mean cautious so we can conclude that their fund descriptor targeted does not mean targeted. As is always the case with an IMA fund discriptor ‘caveat Emptor’

  3. Inspirational stuff from the IMA – I’m off to my local railway station to ask them to rename the document that tells us when trains arrive and depart the Targeted Timetable. Why didn’t anybody come up with this gem before? I do hope they paid millions to a fancy brand development agency.

  4. I think the IMA is being very generous to the players in this sector, given its record.

    How about renaming it the “Keep Your Fingers Crossed” sector? Or the “Here’s Hoping” sector?

  5. The IMA seem to have avoided any blame in relation to the Arch Cru funds which they classified as cautious by them when in fact they turned out to be high risk. If an organisation the size of the IMA cannot get it right. How were small IFA’s expected to do so?

  6. Whilst I can understand some of the cynicism, I can also see how an investor seeing the term ‘Absolute Return’ could infer from that that growth is assured – as such, clearly stating that this is a target rather than a definite outcome can only help.

    Yes, it perhaps means nothing to advisers, but for retail ‘end users’ I can see this perhaps being more clear.

  7. Why the targeted absolute return sector and not just the targeted return sector? The new name suggests that there should be another sector with funds targeting a negative return.

  8. So, it’s to be the ‘TARS’ sector now then?

    That could of course mean the Total Absolute Rubbish Sector, could it not?

  9. Good comments all. Take a look ast the nema and you’ll see it’s just one of haf a dozen measures, which collectively make a big difference. We thought about a lot of names and rejected “Targeted Return” because that’s what all funds do. Also there’s a need for the word here because of the risk that consumers see an implict guarantee – not so in other sectors. Of course they should be seeing good independent advice!

  10. They should do away with absolute return in the sector description. The reason being that consumers think that absolute return means that they are guaranteed to get their capital back no matter how the markets perform. When in reality absolute return means no such thing.

  11. Let’s be honest, it’s just arse covering isn’t it. IMA feeling the heat as the rest of the industry, so I don’t particularly blame them.

    The pendulum will continue to swing for a while until even the regulator eventually realises the inevitable end would be to have products that promise nothing, risk nothing and achieve nothing. Having said that, the absolute return sector has been a prime culprit of creating a gap between what the client is entitled to expect and what they are likely to get. I’d get rid of the sector as it confers a legitimacy the majority of AR funds don’t deserve.

  12. Well that makes it much clearer !

    And this guy collects a salary from someone ?

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