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IMA overhauls Absolute Return sector

by Rachael Revesz on Feb 27, 2013 at 11:52

IMA overhauls Absolute Return sector

The Investment Management Association (IMA) has renamed and set new rules for the Absolute Return sector to clarify to consumers that there is no guarantee of positive returns.

Following the trade body’s review of the Absolute Return sector, it has been re-classified as the Targeted Absolute Return Sector. Funds must make explicit what their target is, and over what timeframe they aim to meet it.

The IMA has said that all funds in the sector must, as a minimum, target positive returns, and it will publish data over one year rolling periods to show which funds have produced consistent positive results.

The funds must also have a maximum timeframe of three years to meet their return objective, up from their previous 12 month target.

IMA chief executive Daniel Godfrey (pictured) said the change of name will help change perceptions of the sector.

'One key purpose of the Absolute Return sector review was to make sure that consumers do not inadvertently perceive there to be some implicit guarantee of positive returns due to the name of the sector,' he said. 'Adding the "targeted" description to the sector name fulfils this purpose.

‘We will continue to keep a close eye on the sector to see whether sub-groups could be created to further refine the value of our sector data for users,’ he said. ‘We will also keep a close eye on performance and, should it become necessary, set performance criteria, which could lead to a fund’s expulsion from the sector on performance grounds.’

16 comments so far. Why not have your say?

T Murphy

Feb 27, 2013 at 13:02

The IMA seem to have escaped receiving any blame in relation to the Arch Cru funds which were classified as cautious when in reality they turned out to be high risk.

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l'ifa passeport en provenance de France

Feb 27, 2013 at 13:31

T Murphy

ok then i blame the IMA ! Targeted ?

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Keith Cobby

Feb 27, 2013 at 13:37

I disagree completely with this renaming. Absolute return implies a positive return. The word targeted merely implies the return expected by the manager. The word 'absolute' should be disallowed for all funds unless return of original capital is guaranteed.

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T Murphy

Feb 27, 2013 at 13:47

l'ifa passeport en provenance de FranceFeb 27, 2013 at 13:31T Murphy

ok then i blame the IMA ! Targeted ?

Very Humerous?

My point was that small IFA's are being blamed for not realising that the Arch Cru funds were high risk. However, the IMA classified them as cautious managed funds. If an organisation the size of the IMA cannot get the classification right how were these small IFA firms meant to do so?

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You must be joking

Feb 27, 2013 at 13:55

OK, so a change in name of the sector makes sense, but not sure whether Targeted Absolute Return is such a great improvement.

Partciularly when you consider the statement (from the article)

"The IMA has said that all funds in the sector must, as a minimum, target positive returns..."

That hardly differentiates them from the funds in the other 33 sectors...

If the IMA want to avoid any possible client (and maybe IFA) confusion a more appropriate name would have been the "We absolutely do not guarantee to produce a positive return just like every other fund out there" sector

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Xiang Xhi

Feb 27, 2013 at 14:52

Where does this leave the Global Growth sector? What if assets in this sector don't grow, but shrink?! OMG; what a disaster this could be for all concerned.

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ynot?

Feb 27, 2013 at 15:06

Will the IMA now publish a list of funds which do NOT target positive returns?

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Compliance Officer

Feb 27, 2013 at 15:23

Keith

I don't see why absolute implies positive at all. Every definition I have ever seen says that it means something that shopudln't be compared with something else.

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Jonathan Kirby

Feb 27, 2013 at 15:29

The name may be a bit of a get out, but really the sector is too disparate making comparisons all but meaningless.

Many funds that are run on absolute lines actually prefer the traditional sectors - Cautious Managed as was.

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Andrew Marsh

Feb 27, 2013 at 15:50

They all guarantee a positive return for the fund manager though.

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Captain Runaway

Feb 27, 2013 at 15:56

As if the IMA classification should count for anything in the Absolute (targeted) return sector. Since these funds can switch risk on and off (look at Standard Life GARS) it depends on the day you are trying to recommend it.

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Philip Wise

Feb 27, 2013 at 17:09

Important thing to remember is that the IMA is an association for investment managers. It's got nothing to do with clients or their advisers. The purpose of the IMA sectors is to allow the employers of fund managers to work out what bonus to pay them.

We need an association of clients and advisers of investment managers, who would be interested in looking at the same things clients care about. That association might produce some sectors which would have relevance for clients.

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Dathan Steele

Feb 27, 2013 at 19:42

@ Phillip Wise. Absolutely, IMA is a club for and on behalf of the fund managers, who want to sell more funds.

'Absolute Return' is a title completely counter to FSA Principle 7. Now the title has changed to 'targeted absolute funds' (over a longer time period). Obviously complete nonsense. Most of the best funds running to a defensive mandate which try to maintain a positive return don't sit in the AR sector. Remember that the fund managers self select which sector they want their fund to appear in....

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Mr Jones via mobile

Feb 27, 2013 at 20:45

Well that clears that one up. Almost as clear as renaming something Mixed Investment 40-85% shares

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phil castle via mobile

Feb 28, 2013 at 07:07

I agree with Phil Wise & Dathan.

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Sascha K

Feb 28, 2013 at 09:11

@Compliance Officer: It's from the mathematical term 'absolute', which basically means "if it has a minus sign, drop it". | -7 | = | 7 | = 7. An absolute value is thus always positive.

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