The IMA has completed its second anniversary review of the Absolute Return Sector and concluded that no changes are warranted at this stage.
Commenting on the decision, Jane Lowe, Director of Markets said:
The IMA Sectors Committee has completed the second anniversary review of the Absolute Return sector and decided not to make any changes at this stage.
There was considerable discussion about sub-categorising the sector, but it was felt that the sector was not yet sufficiently large or mature enough to do so. The aim of delivering an absolute return in a rolling 12 month timeframe remains a major focus.
The IMA is currently undertaking a wider review of its sectors which will give a further opportunity to consider some of the issues relevant to the Absolute Return sector. Unlike many other IMA sectors it is based on an investment objective rather than by reference to the assets which comprise it.
The Absolute Return sector was created in April 2008. It was the first IMA sector to accept offshore funds, which it did from the outset. The IMA extended this to other sectors from April this year. There are 48 funds in the sector with a total of 13.6 billion under management. Ten are offshore funds with 1.2 billion of funds under management.
A further review of the sector will take place in 12 months time.
For further information, please contact:Ginny Broad, Head of Communications, IMA, 020 7831 0898 or 07834 089332
Michle Lunt, Press Officer, IMA, 020 7831 0898
The IMA created a new Absolute Return sector on 28 April 2008.
Classification to this sector is based on self election by firms of both their UK domiciled funds and also any funds which are offshore domiciled UCITS which are UK registered and hold distributor/reporting fund status. The Sectors Committee took additional oversight of the classification decisions at entry. Funds which are classified to the sector should show the fundamental ability to deliver absolute (i.e. more than zero) returns in any market conditions, although in practice the manager may not deliver on that aim. Typically funds in this sector would normally expect to deliver absolute (more than zero) returns on a 12 months basis.
One of the key decisions at the first anniversary review of the sector was to improve the clarity of the definition by incorporating the timeframe for delivering an absolute return into the definition (it had previously resided in the notes). This requires that funds that receive an Absolute Return classification clearly state in their literature that they have a rolling 12 month timeframe for delivery of the absolute return. New funds entering the sector are rigorously checked for compliance against this parameter.
At the first 12 month review the Sectors Committee committed to review the Absolute Return sector again after a further 12 months.
There will not be any changes to the definition, the name or the notes to the sector at this stage.
The sector will not be sub-categorised until it reaches greater maturity and there is less risk of confusion to the consumer.
The funds which populate the sector will be reviewed again. IMA will contact existing funds in the sector which appear not to be fulfilling the timeframe criteria of the definition and ask them to amend their literature to state a commitment to a 12 month timeframe in line with the definition. Failure to do so may put their classification to the sector at risk.
The Sectors Committee will introduce monitoring of a funds stated timeframe for delivery of an absolute return at each review date.
The Committee will review the sector again in 12 months.
The Committee noted also that the IMA Sector review would consider issues relevant to the Absolute Return sector.
Funds managed with the aim of delivering absolute (i.e. more than zero) returns in any market conditions.Typically funds in this sector would normally expect to deliver absolute (more than zero) returns on a 12 months basis.
1.Funds are classified to and remain in this sector on the basis of self election by firms with qualitative oversight by the Sectors Committee.
2.There is no asset based monitoring for this sector. Consideration should be given by those listing in this sector to the obligation for Treating Customers Fairly (TCF).
3.Performance comparisons are inappropriate due to the diverse nature of the objectives of the funds populating this sector, including differing benchmarks, risk characteristics and timeframes for delivering performance.
4.Absolute returns are made in the base currency of the fund. Investors may be subject to currency losses should the base currency be different to their domiciled/invested currency. Currently, only funds that are trying to achieve an absolute return in Sterling are classified to the sector.
5.Funds listed in this sector do not guarantee returns.
The IMA has commenced a review of the structure of its sectors classification system it uses to categorise funds.
The review is wide ranging and it is expected to take a considerable amount of time as the issues are complex and need careful attention. The IMA is not therefore committing to an end date but it is likely to go well into next year and possibly even beyond. The IMAs sectors are designed to provide a basis for comparing funds which are broadly similar.
For more information about the review, see the IMA press release IMA to review sectors
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