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IMA wants advisers to look behind the managed sector labels

A modest proposal from the IMA last week attracted a certain amount of comment over the weekend. Okay, a torrent of criticism.

The issue is the names of our “managed”, or mixed asset, fund sectors. Most of our sectors are confined to a single asset class, and naming is straightforward. In contrast, managed funds aim to deliver an optimal return for the risk that is being run through a judicious mix of equities, bonds and cash, which is adjusted as market conditions change.

There are three such sectors – “active managed”, “balanced managed” and “cautious managed”. These names have been criticised for not telling investors enough about the funds and, particularly in the case of cautious managed, running the risk of misunderstanding. As part of a broader review of the sectors system, therefore the IMA’s Sectors Committee considered these names afresh.

So what to call them? Anybody trying to answer this question needs to consider three things. First, these funds are for the most part sold with advice rather than bought direct by consumers, and advisers should be expected to do their homework. Second, our detailed analysis of their performance suggested that their grouping into the three sectors looked broadly right – the active ones delivered on average higher returns but with higher volatility than the balanced ones, which in their turn showed higher returns and higher volatility than the cautious funds. And third, remember that the sector names are not designed to convey advice, but are simply a way of grouping comparable funds.

One approach to naming would be to get out the Thesaurus and look for different adjectives. But it quickly became clear that words like “defensive”, “flexible”, “aggressive”, “dynamic” and so on would run into exactly the same problems as the existing names.

Another would be to describe in neutral terms the asset allocation. But something like “mixed asset – maximum 60 per cent equities, minimum 30 per cent fixed income and cash, at least 50 per cent £/€” would be not only too long but more to the point would simply have confused most investors.

An alternative approach would have been to describe the investment objectives. But the problem here is the absence of a benchmark, like a market index. “Higher volatility, with prospective higher long run return”? I don’t think so. But “higher volatility” on its own would not really do the trick either.

The Sectors Committee went through all this exhaustively. It was clear that none of the obvious solutions was satisfactory, and that it made sense to go for something which invited advisers and consumers to look behind the names. So the proposed names – Managed A, Managed B, Managed C and a new Managed D – were deliberately concise and neutral. They would be augmented by a full and we hope clear description on the IMA web site when introduced at the start of July.

Throughout we have encountered very diverse views. The reaction underlines this. The proposals are now open for consultation for three weeks and we want to hear your views. But if you don’t like what is proposed, tell us what you would do instead.

Richard Saunders
Chief Executive, IMA


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