TWO GLOBAL SECTORS are FACing the AXE and an index-linked gilt sector is set to be created
The IMA is proposing to abolish the Global Equity & Bond and Global Equity Income sectors and plans to split the UK Gilt sector into two.
The IMA's Performance Category Review Committee (PCRC) has conducted a review of the performance sector classifications, deciding that new sectors should be considered when there are 10-20 funds of a sufficiently distinct character to comprise a separate sector. Conversely, when a sector falls below 10 funds, abolition will be considered, according to Dorian Carrell, head of statistics at the IMA.
The Global Equity & Bond sector has only nine funds, including Axa Global Distribution, NPI Worldwide Income and Scottish Amicable Global Managed. Carrell said: 'There is overlap with the managed sector so all the funds can be easily reclassified. They will be divided between active and balanced managed sectors, none fit into cautious managed.'
The move will change the rankings of the funds. Carrell said: 'Their rankings will go down, but it is hard to be top quartile in a group of nine. The funds don't differ enough from the sectors they are being put into to skew the figures.'
The Global Equity Income sector proposal, to merge it into the Global Growth sector, may be a bit more contentious. However, funds in the sector do not adhere to the sector rules.
Carrell said: 'Funds in that sector currently have a target yield in excess of 110% of the FT World index. Three out of the four funds do not meet this requirement, so the sector is not sufficiently unique to continue.'
The lone fund, which does meet the sector requirement is Quilter Global Income, managed by Derek Larcombe, which has returned 3.4% for the three years to 20 March 2002. Carrell said: 'We don't think Quilter will have a problem with the reclassification but it is the fund that could object. We have spoken to them and are confident that a smooth transition will be made.'
The UK Gilt sector is becoming increasingly unpopular and is to be split into index-linked and conventional gilts. Carrell said: 'These two show markedly different return profiles. In fact, the difference between corporate bonds and Government bonds is not as distinct. Index-linked gilts represent an asset class of their own and it would be more useful if they were in a separate sector, the current estimate is there will be 14 index-linked gilt funds.'
Members have been asked to respond by 19 April in order for the proposals to be implemented on 1 May. Fund managers that will be affected will be contacted to determine their correct classification, Carrell said. After June, there are a few issues that the IMA would like to address. The association is continuing to look at ways that the UK All Companies sector can be divided, something it hopes to be able to report back on later in the year.
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