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.