Announcing the findings of a sector classification review that began in Autumn 2010, the IMA said the three existing managed sectors are to be renamed Managed A, Managed B and Managed C as of 1 July 2011.
The association added that it plans to introduce a fourth Managed sector, Managed D, that will sit below the current Cautious Managed sector on the risk/reward scale, on 1 January 2012.
"The names are intended deliberately to provide no other information about the sector, thereby encouraging users of the sectors to do more due diligence to understand the nature of funds that would fall into the underlying sectors," the IMA said in its review report.
"The use of A, B, C and D does not even indicate the order of the risk/reward hierarchy across the four sectors, and to access this information the user would have to access the definition".
Managed D
The IMA will shortly begin a consultation process on the nature of the new Managed D sector, which will take place side by side with the annual review of the Absolute Return sector in order to explore “whether there are synergies between these sectors and how they might be developed”.
The consultation will consider whether Managed D should include funds that currently sit in the Absolute Return sector and aim to constrain volatility and returns and aim for lower drawdowns.
The IMA hinted that this proposal has yet to find favour with the investment community: “At this stage it appears that this option does not curry much favour, however the risk/reward analysis conducted by IMA research staff seems to support continued consideration of this approach”, it said.
“This option is, therefore, mentioned in the context of the Managed sector review and will be explored more fully in the Absolute Return review”.
Absolute Return funds that would not fall under the remit of Managed D would remain, as now, in a group under the Specialist category “until there were sufficient funds to create more categories”.
Further changes
The IMA added that the Managed D consultation would also consider the inclusion of funds in the current Cautious Managed sector that typically run lower equity weightings and thus tend to experience lower drawdowns.
“It is encouraging that the range of participants in the review supported the current structure of the classification scheme,” said Jane Lowe, director of markets at the IMA.
“Much of the comment focused on sectors such as mixed asset sectors where there is no external benchmark. It is important that these sectors are properly understood by investors, both for what they do and for what they do not do. The changes we have outlined are intended to bring about a better understanding of the sectors and how they fit together.”
The IMA says it will publish more information about funds online in order to aid investors and advisers’ investment choices over the next 12 months.
Separately, the review suggested more work was required on the issue of comparing funds which use leverage; the IMA said funds which use derivatives can accommodated within the existing framework but added it will begin to collect and analyse funds’ derivative holdings for the first time.
