Darius McDermott, managing director of Chelsea Financial Services, thinks labelling funds in the new Volatility Managed sector according to volatility targets would similarly make sense of the differences between products and satisfy fund managers’ desire for a fair comparison.
He said: “That is where we need to get eventually. I don’t know how easy it would be to achieve this, but that sector could be separated into different volatility targets.
“Fund managers want a fair comparison and the fund buyers want to be able to look at a sector and see which funds are doing better.”
“The volatility boundaries give you some concept, I guess,” said Peter Toogood of The Adviser Centre.
“It doesn’t create commonality for the purpose of the funds but it gives you a very broad categorisation and from there, you can take some more meaningful steps.”
Besides, Toogood argues that people might be demanding too much from the IA’s categories.
“The problem is the same for every rating agency. It’s a bit like saying, ‘I’ve got a Japanese high-speed bullet train’ or ‘I’ve got a steam locomotive.’
“There is just so much detail that goes into this kind of categorisation – what is the cash weighting? What are the bond and equity weightings. Do they use alternatives? Not to mention all the other derivations that could exist. There are so many nuances, that’s why it’s so challenging.
“For investors that want more detailed information on volatility risks, there are already options out there, like rating system Distribution Technology, that provide those services in a more user-friendly way for the end-adviser.”
“If a portfolio has been banded a three you do know you’re getting a relatively conservative portfolio that is likely be conservatively positioned.”
“This is a scratching the surface exercise for the IA. It’s a further way of identifying what these funds are trying to accomplish. Nothing more than that really.
“It gives people little bit of a starting gun but there is not much more to it than that at this point.”
