IMA equity weighting balance called into question

Despite being tagged “balanced” the average equity weighting in funds in the Investment Management Association (IMA) Balanced Managed sector has risen to 75%.

The maximum equity weighting in the sector stands at 85% and this has attracted criticism of being too high. Tom McGrath, a fund manager at Apollo Asset Management, says 75% invested in equities is not balanced.

“The definition of balanced is something that is 50/50, neither favourable nor unfavourable or is characterised by, or displaying symmetry,” says McGrath. “My equity weighting [in the Apollo Balanced fund] currently stands at 40%, with the range being 30-50%.”

Of the average 75% invested in equities, nearly 17% is held in British equities, according to Financial Analytics, as at September 17, 2009. Fixed interest only accounts for 7.6% of the average portfolio.

“The IMA should not allow so much to be invested in equities,” adds McGrath. “Has no lesson been learnt from the last collapse?”

The IMA definition of the Balanced Managed sector reads: “Funds would offer investment in a range of assets, with the maximum equity exposure restricted to 85% of the Fund. 

At least 10% of the total fund must be held in non-UK equities.  Assets must be at least 50% in sterling/euro and equities are deemed to include convertible.”

Despite the criticism the IMA has no plans to change the sector as it could create confusion.

Mark Dampier, the head of research at Hargreaves Lansdown, says while 75% is not balanced it has proved the right call in the past six months.

“The real test is when things move down,” he says. “Will the balance change? Cynically I don’t think it would.

“Don’t assume that just because a fund says it is balanced that it is. It is the investor’s job to check under the bonnet.”

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