BondsSep 10 2020

IA looks to create new bond sectors

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IA looks to create new bond sectors
ByImogen Tew

The Investment Association is looking to split the Global Bonds sector into 10 new divisions to accommodate demand from exchange traded funds.

In a consultation paper published today (September 10), the IA proposed dividing the 193-strong Global Bond sector as the number of ETFs looking to join the group would have seen its size increase by 50 per cent.

The report said: “The IA has a longstanding history of providing its sectors as a tool to narrow down investment funds into more manageable buckets.

“In order to ensure that the sectors remain relevant and fit for purpose, the IA is therefore consulting on changes necessary to accommodate ETFs successfully.”

In the 19-page paper, the IA explained its bond fund universe had historically been split by the type of bond, the credit type and those with a sterling focus, which had resulted in a large number of funds being grouped together in the Global Bond sector.

Including the ETFs submitted for entry, the IA is proposing to create sectors based on a single currency exposure where there are sufficient funds to populate it.

Funds that have a diverse currency exposure will be placed in sectors currently labelled ‘Global’ while all other funds will go to the new Specialist Bond sector.

Jonathan Lipkin, director for policy, strategy and research, said: “We are continually monitoring the fund market to ensure that all of the IA sectors reflect the wide range of products the investment management industry has to offer UK savers. 

“The division of the Global Bonds sector will better enable the inclusion of ETFs and make it easier for savers to make like-for-like comparisons.”

The consultation, which closes on October 10, forms part of the IA’s wider work to accommodate ETFs into its sectors after they were given the green light to join last year.

ETFs were supposed to be included by the end of the first quarter of 2020, but the trade body announced in February that it would not meet that target after more than 500 ETFs applied for inclusion.

ETFs have grown in popularity over the past decade. Most, but not all, of these products are passive funds that track an index.

Only physical ETFs, that is those which actually own the underlying assets they are tracking, are eligible for inclusion. 

Synthetic ETFs, which do not own the underlying asset but do offer investors the returns available from the specified market, are not eligible.

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