IMA may link Absolute Return and Managed sectors

The IMA's Absolute Return sector could be linked to the Managed sectors and broken down into risk profiles, according to director of markets.

Jane Lowe says the association is in the second phase of reviewing the sector, which has prompted criticism due to the diversity of asset classes within the individual funds and varying volatilities.

The current sector definition says funds may be included if the aim is to produce a return of more than zero within 12-month rolling periods, but the IMA admits this definition lacks detail.

In order to address this, Lowe says: "One option may be to link the Absolute Return sector with the Managed sectors, indicating whether it sits at the more or less conservative end of the spectrum. In the event it was repositioned in this way, we would need to adjust the definition to reflect that.

"The two criteria in use allow a range of risk characteristics to be gathered into the sector, whereas a more constrained focus would, for example, require a narrowing of permitted risk."

She also considers linking it to sectors which may need to be created in the future as more and more hedge fund type products enter retail asset management.

"Another option would be to place the Absolute Return sector within a group of alternative sectors. Although we have not put together any alternative sectors, there may well be future demand for sectors that are designed principally around outcomes rather than assets. I am referring of course to so-called Newcits and the hedge fund categories."

The third phase of the review will involve obtaining responses from IFAs. The IMA expects to publish a conclusion by the end of Q1 2011.