On Monday, the IA unveiled its brand spanking new Volatility Managed sector, its solution to the growing number of formerly ‘unclassified’ volatility funds.
Eighty-three funds were rebranded and slotted into the new sector, including Standard Life Investment’s MyFolio range, Henderson Global Investor’s core income funds and Rathbones Investment Management’s Strategic Growth and Total Return portfolios managed by multi-asset head David Coombs.
But like the IA’s Targetd Absolute Return category, many in the industry were on the fence about whether its newest sector would provide investors with the clarity and transparency they need to make informed investment decisions.
Many, like Hargreaves Lansdown senior analyst Laith Khalaf, pointed out that because the funds within the sector have vastly different risk targets, investors are left with a “comparison between apples and pears.”
“Low volatility funds will be at the top of the sector when markets are in turmoil, and higher volatility funds will be at the top when market are riding high, so relative performance statistics will tell us little about the skill of the fund manager, and more about how much risk they are taking on,” he said.
The IA’s Targeted Absolute Return, Specialist and Unclassified categories are “similarly inscrutable,” said Khalaf, “unless you delve into what each fund is trying to achieve, and how well it has performed against its own specific targets.”
So, has the IA simply made a complicated situation even more unnecessarily complicated? Or is there some method to its madness?
Helen Bradshaw, who is a member of Henderson’s multi-asset team, thinks the IA’s new category appropriately recognises the increasing number of outcome-focused funds and growing investor demand for these products over recent years.
“The fact that 11 fund groups have chosen to be included in this sector shows that it is a welcome development,” she said.
