Advisers have urged the Investment Management Association (IMA) to support the creation of dedicated sectors for risk-targeted funds after the trade body revealed to Investment Adviser it is considering the idea.
The fund management trade body is set to discuss the possibility of creating risk-targeted fund sectors in forthcoming meetings of its sector committee following the launch last week of five fund groupings by data provider FE.
An IMA spokesperson said the fund management trade body – which is responsible for creating fund sectors – is “aware of the development” and “watching with a great deal of interest”.
“We have no immediate plans for new sectors, but we do expect this topic will feature in sector committee meetings in the next few months,” the spokesperson added, in the clearest signal the trade body is open to the idea.
Last week, advisers said an endorsement of FE’s sectors by the IMA would bring “clarity” to the burgeoning area of risk-targeted products, which includes flagship ranges from Standard Life Investments, Old Mutual Global Investors and F&C Investments.
The advisers added that it would aid them in terms of due diligence, as an increasing number of advisers are deciding to outsource their investment management decisions to such funds.
Under the association’s current system, risk-targeted funds are spread across the Mixed Investment, Specialist and Unclassified sectors, making it difficult to compare products.
Peter Chadborn, director at Colchester-based Plan Money, said: “Advisers would welcome the clarity and guidance from the IMA as to which funds fit in which sectors.
“More advisers are looking at risk-targeted funds, so any improvement in terms of guidance and the ability to measure against peers would be helpful.”
Susan Hill, chartered financial planner at Susan Hill Financial Planning, said if the IMA were to endorse risk-targeted sectors it would “formalise” FE’s work.
She also highlighted the importance of independent risk measurements rather than those applied by fund managers to their own funds.
“As the FCA says to us, you can look at the fund’s factsheet, but you have to do the due diligence as well, so understanding how a fund targets risk is important,” Ms Hill added.
Dan Clayden, director at Clayden Associates, said he had recently started looking at risk-targeted funds as a potential option for clients with smaller amounts to invest, but the absence of dedicated sectors for these products that allow him to draw comparisons has been “one of the difficulties” of using risk-targeted funds.
What’s in a name?
The IMA, now headed by Daniel Godfrey (pictured), has in the past few years sought to distance itself from sector names that imply any guarantee or particular level of risk. At the beginning of 2012, the association ditched the terms ‘cautious’, ‘balanced’ and ‘active’ from its Managed sectors following criticism that not all funds fitted those terms – most notably the failed Arch Cru funds, the largest of which was listed in the Cautious Managed sector.
