Heartwood move to unclassified sector “double-edged sword”

Heartwood Investment Management has moved all of its funds to the Investment Association Unclassified sector, but the move could be a “double-edged sword”, warns one expert.

As a result of the move, a total £2.4bn in assets will go into the Unclassified sector, with Heartwood saying there was a “lack of fit” with the previous Mixed Investment sectors.

Heartwood Investment Management chief investment officer Noland Carter says after having determined the nature of the fund range and proposition, the team found that it “does not fit cleanly into the various mixed investment sectors, with a risk of client confusion as a result”.

He adds: “In common with a number of other risk managed multi-asset fund ranges, we believe the unclassified sector is currently the best available option.”

Tilney Bestinvest managing director Jason Hollands says moving funds into the IA Unclassified sector could be a “double-edged sword”.

He says: ”The problem with the Mixed Sectors is that they capture a very wide bag of products which may have very different risk profiles, ranging from those which will potentially alter their equity exposure considerably within the sector rules and those which are managed in accordance with third-party risk profiling service, so a number of discretionary managers – including Tilney Bestinvest – have their own fund ranges as Unclassified.”

He adds: “It is of course a double-edged sword. On the one hand your funds don’t end up being inappropriately compared with products that have very different risk budgets and asset allocation models, on the other hand you lose some visibility in the market.”

As of February 2015 there were 475 funds with a value of £80bn in the Unclassified sector, according to the Investment Association. In 2014 alone 53 funds joined the sector, according to IA.

F&C, Fidelity, Architas and Standard Life Investments are among the firms which have their funds in the Unclassified sector. 

As part of the sector move, Heartwood has also changed the management of its investment strategies.

The Defensive and Cautious strategies will now be managed by David Absolon and Scott Ingham respectively. They are currently responsible for the fixed income research at Heartwood.

Balanced and Growth strategies will be managed by Michael Stanes and Jade Fu, currently members of the equity research team.

Jaisal Pastakia, currently investment manager of the Income Strategies, will be responsible for the Cautious Income and Balanced Income investment strategies.

“These changes more clearly align the management of each strategy with the research responsibilities that members of the investment team have,” says Carter.