IMA seeks IFA opinion on sectors shake-up

The IMA will consult with advisers on potential changes to the Cautious Managed, Absolute Return and Global Growth sectors as part of a wider review of its fund classification system.

Focus groups will be carried out throughout the end of 2010 but IMA director of markets Jane Lowe and IFAs have warned Professional Adviser there are no clear-cut solutions.

“A lot of people want to see the Absolute Return sector cut down but nobody agrees on how,” according to Lowe.

She said some people want the sector divided into sub-sectors by asset class but there are also arguments for it to be broken into geographical regions or split between market directional and market neutral funds.

Meanwhile, changes to the Cautious Managed sector, which allows fund managers to have between zero and 60% exposure to equities resulting in varying returns and risk profiles, could lead to the segmentation of more defensive funds or those offering an income.

The IMA is also consulting members on changes to the Global Growth sector, including proposals to allow sector specialist funds into the group as long as they meet the global requirements. This sector would also be re-named ‘Global’.

Another option, which would apply to a number of sectors such as Absolute Return, Property and UK All Companies, would be to allow advisers to break down sectors using specific filters on the IMA website.

For example, a user would be able to search for all mid-cap specialist funds within the UK All Companies sector.

The IMA’s Sector Review will continue into next year and any changes will be in place by the second half of 2011.

Adviser Wish List

Darius McDermott, managing director of Chelsea Financial Services
“My two big bugbears are the Cautious Managed and UK All Companies sectors. You would expect a cautious fund to have some “caution” to it but with such a wide equity definition, you cannot tell which country they are invested in or whether they are in large-caps etc. This definitely needs to be addressed.”

Ben Willis, head of research at Whitechurch Securities
“The Absolute Return sector is a complete mish-mash of funds. There are market neutral, market directional and then multi-asset strategies. Managers can hold pretty much anything. Perhaps you could have a separate market neutral sector but the remaining funds would make up another mixed bag. With the amount of money going into Absolute Return though, it should be a priority. Cautious Managed has distribution funds holding income stocks and then those that only go for growth stocks. There is no like-for-like comparison and it needs some rationalisation.”

Mark Dampier, head of research at Hargreaves Lansdown
“I do have great sympathy with the IMA as you have to ask how many more sectors we can possibly have. You could sub-divide and sub-divide until we have hundreds of sectors that no one will take seriously. All this does is emphasise the broker should be doing their job – finding out what the fund does and where it fits into the client profile. It was easier to compare the funds with the benchmark 15 years ago but not now with derivatives. The IMA should emphasise that funds are broadly put into these categories but you need to look under the funds’ bonnet carefully.”

Justine Fearns, research manager at AWD Chase de Vere
“The Absolute Return sector could be dissected in so many different ways but the IMA is not going to please everybody. This should raise awareness to not just buy a fund based on its comparison to the sector average. They could perhaps split the sector between bond/equity funds and multi-asset vehicles, as these have a slightly different risk/return profile but it is difficult.”