He said the announcement by the Investment Management Association of its decision to align with the Association of British Insurers managed sector naming convention was "disappointing and a lost opportunity".
"Sectors are going to become more and more important looking forward and a failure to identify some risk metrics to determine which funds fall into which sectors does not do investors or intermediaries any favours,” he added.
The new labels split funds by the percentage of assets they have in shares, which Fidelity among others has said is misleading because equities do not provide the only risk exposure in a fund.
A further problem of using equity percentages as a way of defining a fund, according to Webb, is that managers will tend to run their portfolios towards the maximum end of their permitted equity exposure – thereby taking more risk in an attempt to outperform peers.
A better alternative?
Back in June, Webb wrote to the IMA during the consultation period on sector re-labelling. He said: "Instead of defining the sectors by risk ranges, they have continued to define them by underlying asset exposures which are so broad that almost any outcome is possible."
He said the result of this was that investors might end up buying the wrong type of fund for their risk profile.
Webb said in the consultation period there were other IMA members with opinions aligned with Rathbones and some that were diametrically opposed to their proposals.
Specifically Rathbones suggested the sectors were renamed Managed Unconstrained, Managed Growth and Income, Managed Cautious and Managed Defensive, but additionally that the volatility relative to equities be displayed alongside risk profiles for investors in those funds.
This would "allow a simple understanding of the sort of ‘ride’ an investor could expect, while freeing up the manager to invest the money in a way they believe will achieve a good outcome within the risk tolerance," Webb said.
Rathbones also said sectors should have an ideal time horizon in which the investor should be willing to commit money and that there should be a clear description of how the sectors relate to one another.
Webb concluded: "To be fair to the IMA there is no consensus in the industry over what the best route is and there is no perfect answer. I think there are quite a number of interested parties and those fund houses backed by big life companies would prefer an ABI/IMA consensus solution and those with existing funds in those sectors would prefer for them to remain as they are."
