FE shuns IA’s ‘inappropriate’ sectors for risk-targeted funds

FE is ditching the Investment Association’s “inappropriate” Mixed Asset sectors for risk-targeted funds and will start comparing them to similar products instead.

The IA (formerly IMA) currently groups funds that aim for specific returns while keeping risk levels constant in with other funds that invest across asset sectors.

However FE research head Rob Gleeson says that is “inappropriate” for funds targeting outcomes rather than outperformance.

“We think the Investment Association’s classification is inappropriate for risk-targeted funds, so we’re switching from theirs to our own,” he explains.

The data company thinks that putting the funds in pools with similar targeted outcomes will give advisers a clearer view of a fund’s performance relative to peers.

“We believe risk-targeted funds are not being well represented in the IA Mixed Asset sectors. These funds aren’t designed to beat sectors, they are designed to match a certain risk-target, so they shouldn’t be judged on their performance against a sector,” Gleeson adds.

That means the top tenth of risk-targeted funds will be awarded five-crown FE ratings.

An IA spokesman says: “Most funds that have a specific risk (volatility) target in their objective have typically not chosen to be classified in the Investment Association Mixed Asset sectors – preferring to remain unclassified.

“We are launching a consultation shortly that will address these areas and the future of the Unclassified sector.”

FE data head Sam Walker says advisers want to research risk-targeted funds to determine the return and volatility over time compared with rivals.

“Advisers have been calling out for a facility which will allow them to see all of these risk-targeted products under one umbrella, not scattered amongst IA sectors, or unclassified,” he says.

FE says seven Standard Life MyFolio funds were ranked in the top 10 per cent of risk-targeted funds, including SLI MyFolio Managed Income II, Multi Manager IV and Managed V.

Gleeson adds: “Standard Life Investments’ MyFolio funds are by far and away the most successful risk-targeted funds out there, so that’s why they dominated the Crowns for risk-targeted funds.”

Overall, 19 funds achieved a Five FE Crown rating at the first time of asking, while 14 saw a reversal in fortunes, gaining Five FE Crowns up from a previous One FE Crown.