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By Nick Reeve | Published Jun 01, 2012

Schroders backs benchmark split for Absolute Return sector

Schroders has backed the option of splitting the IMA’s Absolute Return fund sector into two sub-sectors - one for funds that use ‘cash’ benchmarks and one for those that use other types.

The IMA this morning issued three options for the future structure of the controversial 78-fund sector, including splitting the funds by benchmark or investment strategy or a more complex online-based solution, as revealed by Investment Adviser.

The benchmark split plan would see all absolute return funds that use cash-like benchmarks such as Libor compared in one sub-sector and funds that use relative benchmarks, such as equity indices, placed in another.

Robin Stoakley (pictured), managing director at Schroders, said: “I like the idea of grouping according to cash benchmarks, that to me makes a lot of sense.

“To me, the definition of absolute return is a fund which doesn’t lose money. If a fund doesn’t have an absolute benchmark then it shouldn’t be in the sector.”

Mr Stoakley added that the cash benchmark sub-sector would be “meaningful” as its constituent funds could be compared by outcomes and performance, a practice that the current IMA Absolute Return sector does not permit due to the diverse nature of its members.

More than 40 funds currently in the IMA Absolute Return sector use the London inter-bank offered rate (Libor) or similar benchmarks such as CPI, RPI or the Bank of England interest rate.

Andrew Ross, chief executive at Cazenove Capital Management, added: “Any solution that makes it clear to investors and advisers that absolute return is an aim and not a guarantee is welcome, and anything that allows people to properly differentiate between different fund types is also welcome.”

Mr Ross did not back one particular option but said the IMA’s third proposal - introducing an online filtering tool for advisers and investors to apply their own criteria - would require more active investor participation than the current sector system.

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