Eight funds have quit or been forced out of the IMA Targeted Absolute Return sector and gone to the IMA Specialist sector, following a review of the controversial fund grouping.
Funds run by Carmignac Gestion, Polar Capital, BNY Mellon Asset Management, Aviva Investors and Henderson have all exited the sector after either being removed by the trade body or choosing not to meet the sector’s more onerous requirements.
Argonaut Capital Partners is seeking to reinstate Barry Norris’s IM Argonaut European Absolute Return fund into the newly renamed sector after it was removed by the IMA. The company blamed an “administrative error” for the fund’s removal.
Dennis Pellerito, Argonaut’s head of UK intermediary sales, said the company was keen for the fund to stay in the overhauled sector and was in the process of updating the fund’s objective to include a specific period in which the vehicle would aim to generate a positive return. In the three years to June 6 the fund gained 21.6 per cent, according to FE Analytics.
A spokesperson for City Financial said a similar mistake had been made with its £6m EFA OPM Diversified Target Return fund, which the fund’s authorised corporate director was seeking to rectify.
The IMA’s sectors committee has also expelled the £5.4m Carmignac Capital Plus fund from the sector. A spokesperson for Carmignac Gestion said the company’s investment committee was “investigating the changes”.
Polar Capital opted to move its £24.6m UK Absolute Return fund into the IMA Specialist sector, and Henderson has made a similar move with an institutional portfolio. Aviva Investors confirmed last week that it too had switched its UK Absolute Return fund into the IMA Specialist sector.
The BNY Mellon Evolution Global Alpha and the Elite LJ Absolute Return Portfolio funds have also left the revamped sector and joined the IMA Specialist sector.
On June 3 the IMA renamed the sector, introducing the word ‘targeted’. It also required funds to specify a timeframe of three years or less in which they will achieve a positive return.
The fund management trade body has stated that it will monitor the revamped sector to ascertain whether more products need to be removed, and has already taken action to kick out funds that do not meet the new requirements.
Ed Moisson, head of UK and cross-border research at Lipper, described the IMA’s actions as “a very positive step”.
“Funds have got to be more concrete in their disclosure to investors,” he said. “I think its perfectly reasonable they [the IMA] are getting the guidelines much clearer and making fund groups stick to that,” he said.
Scott Spencer, senior portfolio manager in Aberdeen’s multi-manager team, said: “Sectors are designed as a very general guide. They are not exactly comparing apples with apples.
“The timeframes might be the same but the volatility can be hugely different – you still need to do the work and check out what you’re buying.”
Mark Dampier, head of research at Hargreaves Lansdown, said: “Many people look at what the sector says, not what the fund does. You have always got to look under the bonnet of a fund and the IMA can subdivide them but I don’t think that’s going to make my job any easier.”
Does the IMA’s revamped sector have ‘Absolute’ support?
Alan Dick, partner, Forty Two Wealth Management
Before, [the sector criteria] was so vague it was pointless and dangerous. It’s an improvement in transparency – at least it is some kind of viable grouping. This latest move is a step in the right direction but it would not make me use absolute return funds. They are trying to achieve something you can get by basic diversification – it is not consistent with our view of investing because the risks are so unquantifiable.
Simon Webster, managing director, Facts & Figures Financial Planning
We are in danger of becoming so transparent nobody understands anything. If something does what it says on the tin but the print is so small nobody can read it, what’s the point? Absolute return was clear in the first place. I’m worried the regulator was looking for things to do rather than letting [the funds] work. Nobody is going to buy a fund without looking at past performance – they are trying to fix problems that don’t exist.
Dennis Hall, managing director, Yellowtail Financial Planning
I think it may help. The concept exists within pension funds – it’s not new, but I’m not sure we would use them. [The three-year benchmark] is almost a replacement for saying ‘cautious’, ‘controlled’ or ‘aggressive’ with a different title. It may give some people false security. They still have to deliver against that target and the only way to do so is to have an asset target. There’s a degree of complication that does not need to be there.
How the IMA will police the sector
The IMA has hinted that it may kick more funds out of the sector in future if they do not meet the ‘absolute return’ objective, even though the trade body has repeatedly emphasised returns are not guaranteed.
In the meantime, however, the IMA has detailed on its website plans for monitoring funds on a rolling 12-month basis. From today (June 10) advisers and investors will be able to access data illustrating whether each fund in the sector has delivered a positive return in the previous 12 months. This information will be accrued every month to eventually store a maximum of the latest 24 data points.
