IMA looks at splitting absolute return sector

The Investment Management Association (IMA) is looking to split the absolute return sector into two separate sub-sectors covering one-year and three-year timeframes, Money Marketing, Fund Strategy’s sister publication, understands.

The move would allow funds with strategies that are designed to operate over a longer timeframe to retain their status as an absolute return offering rather than being placed in an alternative sector.

Last August, the IMA said funds not delivering 12-month gains could be kicked out of the sector

Last week, Money Marketing revealed that the FSA is privately advising fund firms against using the term “absolute return” when launching new funds, as it gives the impression that growth is guaranteed.

Last August, the IMA said funds not delivering 12-month gains could be kicked out of the sector. Morningstar figures show that six absolute return funds failed to outperform in 2010.

The IMA launched the absolute return sector in May 2008 and the sector has quickly become one of the biggest sellers in the IFA market.

A spokeswoman for the IMA says it is unable to comment on individual sectors while the wider sectors review is ongoing. (article continues below)

Adrian Lowcock, a senior investment adviser at Bestinvest, says: “I think it would help clients to understand when to expect returns from absolute return products, but I expect there will have to be more work done because there are an awful lot of absolute return products, many of which are doing completely different things. The main problem is getting investors to understand the absolute return tag.”

Darius McDermott, the managing director of Chelsea Financial Services, says: “Almost any product can lose money over a one-year period, but an absolute return fund should not lose money over three years.

“I would agree that it would be a starting point but more may need to happen, given the spread of products in that sector. There may be more sensible ways to break the sector down.”