Autif is to change the definition of both the UK and the North American smaller companies sectors, w...
Autif is to change the definition of both the UK and the North American smaller companies sectors, writes Robert Stock.
The new definitions require funds in the sector to be at least 80% invested in UK or US equities with market capitalisations in the bottom 10% of the market.
The decision, which was taken by its Performance Category Review Committee on 9 May, brings the definition of the sectors into line with the definition of small cap funds investing in other regions such as Japan, Far East and Europe. The redefinition of the sectors, which Autif said prompted no objections from asset managers during the consultation period, takes effect immediately and undoes the historical link between the definitions and specific indices.
The previous definition for US smaller companies was that at least 80% of a fund's assets must be held in US equities on the Russell 2000 index or of equivalent market capitalisation.
That definition, however, is widely recognised as being inappropriate as the Russell 2000 is rebalanced annually, something that would theoretically force fund managers to sell stocks in order to remain within the sector guidelines.
Similarly to the US smaller companies sector, the previous definition for funds in the UK Smaller Companies sector was tied to a specific index.
Funds in this sector have had to invest at least 80% of their assets in UK companies, which form part of the Hoare Govett Smaller Companies Index or have an equivalent or lower market capitalisation.
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