The Investment Management Association is renaming the absolute return sector the “targeted absolute return sector” to make investors aware returns are not guaranteed.
Following its consultation on the future of the sector last June, 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 this sector may aim to achieve a return that is more demanding than a ‘greater than zero after fees objective‘.
The new definition for the sector removes the requirement for funds to provide returns within a rolling 12-month period. Funds in the targeted absolute return sector must clearly state the timeframe over which they aim to deliver their stated objective, with the timeframe no longer than three years.
The IMA will stress to investors the sector will include a range of different types of funds with different investment strategies and risks, making performance comparisons across the sector inappropriate.
The trade body will monitor performance of the new sector by publishing monthly figures on how many times over the preceding two years a fund has failed to deliver a positive return on a rolling one-year basis. For newer funds, the IMA will publish how many times a fund has failed to deliver a positive return based on rolling one-year periods since launch and the total number of months since launch when a figure could be calculated.
The IMA will monitor the sector to determine whether there should be rules that would exclude funds from the sector based on historic performance.
It will also develop an online filtering tool within the IMA consumer website to help consumers and advisers find and compare similar funds. Users will be able to identify a universe of funds on which to carry out due diligence, based on criteria such as benchmark, timeframe, hedge fund strategy and volatility.
The IMA says it will review whether it would be worth creating sub-sectors within the targeted absolute return sector where enough funds have a common objective and timeframe to justify comparison.
The absolute return sector will be renamed on 1 June. Existing funds in the sector have until 20 May to confirm to the IMA whether they intend to remain in the sector or request a reclassification.
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.”
Data from FE which shows funds that have lost money over three years and over one year: