The ABI has created five sectors for life and pensions funds, which invest in fixed interest securit...
The ABI has created five sectors for life and pensions funds, which invest in fixed interest securities as part of its plan to restructure all of its performance categories.
The new sectors include UK gilts, UK fixed interest, UK index linked bonds, UK long bonds and global fixed interest. These will replace the current three sectors of UK gilt & fixed interest, which has 103 members at present, international fixed interest with 22 and index linked gilts with 37.
The UK long bonds is for pension funds that are specifically designed for those investors approaching retirement as in addition to protecting capital value, their aim is to try and protect the annuity purchasing power of the fund.
Within the UK fixed interest sector at least 80% must be invested in sterling denominated investment grade fixed interest debt.
There is no sector for portfolios that invest in sub-investment grade as the association deemed there were not enough funds.
Mick Stirrup, a member of the ABI investment classification group, said: "We have tried, where possible to align the sectors along the same lines as Autif's Performance Category Review Committee. However, within these sectors we could not entirely follow this.
"We are trying to better enable consumers to compare like for like and they do not understand that there are difference between unit trusts and life and pension funds. An example of this is in fixed interest."
Autif has three bond sectors, UK gilts, UK corporate bonds and UK other bonds, which is for higher yielding funds which invest predominantly in sub-investment grade paper.
Stirrup said: "We have not created a sector for sub-investment grade as in life and pensions there are only one or two high yield bond funds and is not considered to be a product provided by the life industry. We will be keeping our eye on it but the 20% leeway within the UK fixed interest sector should be enough for managers to invest in higher yield if they wish."
The other difference between the Autif and ABI sector classifications is the restrictions within the gilt sectors.
The ABI is limiting investment to at least 80% of the fund investing in UK Government fixed interest while Autif has restricted its members to 90% in gilts. The ABI sector committee has already restructured the managed funds, UK equity, and distribution sectors and expects to implement the fixed interest charges in the next month.
Following that it will examine the country specific fund sectors, international, cash and protected funds.
Stirrup said: "Protected funds will be the real challenge as we will be looking at the various types of funds available including with-profits."
The ABI also intends to monitor the sectors and will declassify any fund that invests beyond its sector remit three months consecutively, Stirrup said.
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