In a letter to managers, the IA revealed it would not move forward with a proposal to separate the 14 mid-cap funds from the current All Companies sector due to a lack of support.
However, those involved in selecting funds have called the decision disappointing, claiming it will make it harder for retail investors to properly judge the performance of the strong mid-cap space.
Ryan Hughes, head of fund selection at AJ Bell, said: “The issue the IA has got is the size of the sector would have made it reasonably small but it’s not unprecedented to only have 14 funds in a sector.
“I’m a little bit disappointed they are not progressing with it because the All Companies sector remains a bit of a mess.”
With the plethora of funds lumped in to the All Companies sector, it is easy for people such as Hughes and advisers to pick out the mid-caps to judge performance, but difficult for retail clients to do the same.
“It certainly does not help the retail investor get behind the sector and understand why they are performing as they are,” Hughes added.
The IA first started asking for feedback on the potential of a new sector in May this year looking into the level of demand in the industry and how the sector could be defined.
If it had been taken forwards, mid-cap vehicles such as Paul Spencer’s Franklin UK Mid Cap fund, the £588m Neptune UK Mid Cap fund run by Mark Martin and the Schroders UK Mid 250 fund, headed by Andrew Brough, could potentially have been moved to the new sector.
Darius McDermott, managing director of Chelsea Financial Services, said he was “surprised and disappointed” by the decision to drop the proposal.
“It’s so difficult to separate these funds out,” he said.
“We already do it ourselves anyway but I think when you are comparing like for like a mid-cap sector would have been a good thing, there’s enough funds to justify it.
“We have had our own sector for the mid cap funds for a while because they have been a very strong performing part of the market.”
