New rules spark IMA sector review

The Investment Management Association (IMA) is conducting the biggest review of its fund sectors in a decade amid the substantial impact of Ucits III and the proposed retail distribution review (RDR).

The association is discussing how to accommodate funds that use wider Ucits III or non-Ucits retail scheme (Nurs) powers to hold ­alternative assets, many of which are not covered by the funds’ sector definitions.

The IMA’s investigation covers funds that hold derivatives but are housed in conventional equity or bond sectors and those that invest partly in property, commodities, private equity or hedge funds but are included in the managed sectors. (article continues below)

As part of its review, the IMA has asked members which share classes they should use to monitor performance, particularly given the expected proliferation in share classes after the RDR.

The IMA is also considering introducing a tool on its website next year that would enable visitors to sub-divide its sectors. Data providers and print publications could then publish these sub-divided versions if they so wished.

The trade body says it will relaunch the website in September to make it easier for users to sort through its huge industry database.

It will also review whether it should break up the UK All Companies sector altogether. The sector is the largest of the IMA peer groups and contains a particularly disparate range of funds, including all-cap, large-cap and mid-cap vehicles and several funds with special aims or strategies.

Jane Lowe, the director for markets at the IMA, says she recognises the industry is using the sectors in a way that differs from their broad objectives. For instance, fund groups are using the International Equity and Managed sectors to house income funds, although the sectors were designed to incorporate growth remits.

The industry also compares the performance of individual funds and their sectors, although their sectors may contain funds with wildly differing objectives. Introducing search features to sort through sectors might help to reduce confusion, Lowe (pictured) says.

She acknowledges that “it’s quite difficult to find stuff” on the website and describes the online overhaul as “only the starting point on the consumer end”.

The IMA has already talked about creating separate income sectors for Europe ex UK and global equity funds, Lowe says, but received “a more disappointing response than we expected” on global equity income in particular. Certain global equity income funds had also not consistently met income targets, she adds.

“The focus on UK Equity Income is not sufficient, but we do need a starting universe. People like to put things in the title, but don’t do it in practice,” Lowe says.

The IMA has looked at creating a commodities sector, but abandoned the idea as funds’ strategies varied so widely. “The aim is to keep these sectors large and robust,” she says.

The review raises questions about how the sectors could be sub-divided in the absence of splits.

Breaking peer groups down consistently by investment objective could create a raft of sub-sectors, as opposed to categorising based on performance and investment strategy, which vary more widely.

Sub-sectors with about 10 funds or more could include UK All-Cap, UK Mid-Cap, UK Large-Cap, UK Equity Growth & Income and UK All-Cap Ethical from the UK All Companies sector; and Europe ex UK Income, Global Income, Cautious Managed Income, China, India, Latin America, Environmental, UK Property, Global Property, Absolute Return Equity, Absolute Return Bond and Absolute Return Multi-Asset from the other sectors.

To preserve consistency across peer groups where performance data is compared, more divergent funds could also be re-housed in the Specialist sector.

The IMA, which last launched a review on this scale in 1999, sent a survey on the sectors to members on May 27. The deadline for responses was June 25, and a members’ meeting is set to be held in September. Readers can respond to the survey questions and proposals on