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IMA hints at absolute return overhaul

The IMA could link the Absolute Return sector with other sectors or replace it entirely.

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The association’s official review of Absolute Return is due to take place in April, on the third anniversary of the sector’s creation.

However, Jane Lowe, the IMA’s director of markets, has acknowledged that comparison of the different absolute return funds against their peers is made difficult given the different mix of asset classes and benchmarks used by the funds. She also spoke out suggesting that the sector’s current home under the Specialist grouping is unlikely to be made permanent.

“We are aware that it is much more time consuming [for fund pickers] when the starting universe is not comparable for performance purposes, so now that the sector is beginning to mature, our next step is to find its permanent home in the scheme,” she said.

“The current Specialist group does not in our view offer a satisfactory permanent place as it views the sector as a one-off rather than finding its place alongside other sectors.”

Lowe expects the IMA Sectors Committee to take a closer look at the mixed asset managed sectors (Cautious, Balanced and Active) and the discretion granted to these managers.

She added: “There is considerable discretion granted to the manager in the absolute return sector too, so one option may be to link the Absolute Return sector with the managed sectors, indicating whether it sits in the more or less conservative end of the spectrum. In the event that it was repositioned in this way, we would need to adjust the definition to reflect that.”

Alternative sectors

A second option would be to replace the Absolute Return sector with a new group of alternative sectors.

Lowe remarked: “Although we have not actually got any alternative sectors as yet, there may be future demand for sectors that are designed principally around outcomes rather than assets – that is the ‘newcits’ and hedge fund categories.”

Firm conclusions about any changes will be published by the IMA before the end of the first quarter of 2011, followed by a second phase of discussion with the IFA and wealth manager communities.

Lowe was speaking at yesterday’s Portfolio Adviser Expert Investor event on absolute return, where more than half of delegates (57%) said they would like to see a complete overhaul of the Absolute Return sector. A write-up of the event will feature in the forthcoming March edition of Portfolio Adviser.

Current IMA Absolute Return sector definition: Funds managed with the aim of delivering absolute (i.e. more than zero) returns in any market conditions. Typically funds in this sector would normally expect to deliver absolute (more than zero) returns on a 12 months basis.

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