Lowe delivered the keynote speech at yesterday’s Portfolio Adviser Expert Investor Absolute Return event held at the Mayfair Hotel in London. She described the sector as including funds that “fitted into the definition rather than the definition fitting around them. This is not ideal in our view.”
As a reminder, she added that the primary purpose of the IMA’s sector classification is to provide groups of similar funds whose performance can be fairly compared by consumers and their advisers.
Explaining some of the aims of the review, Lowe added: “To date we have treated the Absolute Return sector as immature, which means we do not feel that the funds within it are sufficiently like-for-like to allow performance comparisons to be made.
“The funds have in common the same aim of a more than zero return and the same timeframe for delivery. But they also use different assets, different benchmarks and offer varying risk characteristic so until we have squared that circle we cannot say that the sector has reached maturity.
“Even so our aim remains to meet the primary purpose of the sectors and have a sector which does allow performance comparisons to be made.
Outlining some of the possible sub-sectors, she said: “As in previous years we have analysed data about the funds in the sector and sought views from the membership on the best way forward.
“There is a wide range of opinion across the fund managers. Some favour an asset split; some would like to change the timeframe or incorporate more than one timeframe; some favour a volatility measure for funds in the sector; others would like a common benchmark to be introduced; and others want the sector to be left as it is.”
The Absolute Return sector review has a clear mandate to deal with it as a standalone category. Given the funds contained in it are defined by their output rather than, say, their asset class, Lowe suggested other outcome-based sectors could develop over time in a similar way to the hedge fund approach.
