Making sense of IMA’s mixed investment sectors


    They were once known as the ‘ABC funds’, which for many could have stood for ‘Anything But Compelling’.

    But an overhaul by the Investment Management Association (IMA) and Association of British Insurers (ABI) in late 2011 meant the sectors, previously named ‘active’, ‘balanced’ and ‘cautious’, were renamed under the Mixed Investment banner in a bid to make it clearer to investors what these funds are all about.

    As sector names go, ‘Mixed Investment’ may lack the ring of active or cautious managed, but the decision to make explicit a fund’s equity content in the sector name was born out of necessity.

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    In early 2011 the FSA fined Barclays £7.7m for poor advice relating to funds that were riskier than their names suggested. Much of the penalty centred around recommendations for funds with the words ‘cautious’ and ‘balanced’ in the name, which were in fact riskier than investors had believed.

    The outcry following the Barclays debacle went some way to encouraging the IMA and ABI to find new names for their ABC sectors. In February 2011, the ABI rolled out the new sectors: Mixed Investment 0-35% Shares, Mixed Investment 20-60% Shares, Mixed Investment 40-85% Shares and Flexible Investment. Meanwhile in May that year the IMA first decided to rename the sectors simply A, B and C – an exercise that fell flat on its face.

    After critics said the new names would simply add to the confusion, the IMA decided to align its sector names with the ABI’s, while also creating its own Mixed Investment 0-35% Shares sector in January 2012 and renaming the Active Managed sector as ‘Flexible Investment’.

    But as sectors go, the mixed investment trio conjures little excitement among average investors.

    Nevertheless, they are worth understanding a little better because they hold an array of funds that range from standard equity and bond funds to highly diversified multi-asset funds. The trick, however, is knowing what each fund does before an investment is made.

    All sorts

    Each of the mixed investment sectors follows on from the way the former active, balanced and cautious sectors were constructed. They differ in that they spell out the potential equity weighting each fund can carry. This has been done in an attempt to make it clear to both advisers and investors how much potential equity risk lies within a fund.

    At the most basic level the IMA Mixed Investment sectors are funds that can hold a range of assets: either a combination of equities and bonds in their simplest form or a full multi-asset portfolio that includes property, infrastructure and other asset classes.

    By IMA rules, the funds must hold a range of different investments. The Mixed Investment 0-35% Shares sector is new to the IMA and, as the name suggests, caps a fund’s holding of direct equity investments at 35 per cent. It also requires a minimum 45 per cent in fixed income, such as corporate or government bonds, and cash. Additionally, 80 per cent must be invested in established market currencies – US dollar, sterling or euro – of which at least 40 per cent must be sterling.