IMA fails to end criticism with absolute return review

Businessman told offA pressure group branded the long-awaited conclusion to a review of absolute return funds “a total disgrace” and accused the UK’s Investment Management Association (IMA) of taking two years to think up one word. “It has taken the IMA nearly two years ... to come up with a single word – targeted,” says Gina Miller, founder of the True and Fair campaign. Miller was referring to the IMA’s decision to add “targeted” to the name of its absolute return fund category – a key proposal in the outcome of the 643-day long review. The name “Targeted Absolute Return Sector” is meant to highlight that the underlying funds aim for a positive return but do not guarantee one. Fears that retail investors would be misled by the absolute return label sparked the review. The IMA says funds in the category must aim for positive returns in all market conditions within a timeframe not exceeding three years, though managers may set more demanding goals. In a withering statement, Miller questioned the value of the IMA's definition for its new category. “Under the new definition, funds in this sector may aim to achieve a return that is more demanding than a 'greater than zero after fees' objective. Is there much point in a fund not aiming to deliver positive returns?” Miller says the review was “a total disgrace and shows the IMA is simply not fit to carry out such an important task on behalf of investors”. Absolute return funds are typically multi-asset vehicles, which may employ derivatives and other hedging tools to target a positive return in all market conditions. Positive returns are not guaranteed and many such funds have lost money in recent years, leading campaigners to claim that absolute return funds are not appropriate for many retail investors, who may be unaware of the risks associated with the products. Daniel Godfrey, the IMA’s chief executive, says one aim of the 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”. ©2013 funds europe

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