In a statement out on Monday, the IA said it chose to create the new sector rather than reorganise the sector structure entirely, as it offered: “a simple and clear approach to the problem” that will retain the scheme’s “current clarity” for consumers and their advisers.
The issue of how best to classify the growing number of outcome-based funds has been brewing for a while, culminating in a consultation paper by the association in February 2015.
At the release of the consultation paper, the IA said: “There is increasing evidence of a move away from a retail product environment in which investment funds tend to be used as component building blocks in a wider strategy. Instead, outcome-focused fund solutions are being offered as a one-stop shop for asset allocation or risk management.
The association has, however, moved from a tree structure schematic for understanding how funds fit together, to a matrix, which it said ensures that the schematic “remains clear and fit for purpose”.
The new sector, when it goes live in November, will have a high hurdle of transparency for potential constituents.
“Funds will be required to publicly disclose that the fund is managed with the intention to deliver a volatility or risk outcome as well as provide advisers and consumers with information on how volatility is measured – including the time frame over which data is calculated,” it said.
The IA has called on members to elect the funds that they believe fit this new definition, but said its sector committee would then review the selections to ensure they meet the requirements.
Galina Dimitrova, Director of Capital Markets at the IA, said: “The IA sectors always look to evolve alongside the universe of investment funds available to investors, and the launch of the Volatility Managed sector is an important step to grouping more outcome focused funds together for the benefit of consumers and advisers when making investment decisions.
