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IMA extends performance timeframe in absolute return overhaul

IMA extends performance timeframe in absolute return overhaul

The Investment Management Association has extended the timeframe over which Absolute Return funds target positive returns, dropping the original 12 month target.

The review results, which were expected last year, are intended to clarify the nature of funds in this sector to help investors, as these funds have tended to diverge significantly in performance and strategy.

The industry body said all funds must at a minimum aim for positive returns in any market although they ‘may choose to set more demanding targets.’

The IMA said in a statement: ‘Whatever target they set, it must be specified explicitly.’

The body said all funds in the sector must state a timeframe over which they are aiming to meet their specified target, which may not be longer than three years.

The sector will also be renamed the ‘Targeted Absolute Return Sector’ to ensure there is no doubt that positive returns are a target and not a guarantee.

Daniel Godfrey, IMA chief executive, said: ‘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. 

‘Adding the ‘targeted’ description to the sector name fulfils this purpose.

‘A second key purpose was to ensure that consumers can simply and easily find out what individual funds are setting out to do. The clarifications together with the new tools and monitoring that we have announced today fulfil that objective.’

He added: ‘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. 

‘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.  The monitoring we have announced today will be an important tool in this regard.

He added: ‘Whilst the sector classifications help consumers to make informed decisions, it’s important to note that investment choices should not be based solely on this information. Investors should ensure they fully understand what a fund sets out to do and seek financial advice if necessary.’

 

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