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Sector Definitions and Classification
There are over 2000 investment funds to choose from. To help you identify funds with similar characteristics, they are categorised within a fund classification system of over thirty sectors. The sector categories are broadly divided into funds that aim to provide an ‘income' and those designed to provide ‘growth', although there are some categories with aims that deliver a mixture of both or are more focused on capital protection. Each sector is made up of funds investing in similar assets, or the same stockmarket sectors, or in the same geographical region.
Funds are classified in this way to make it easier for you to find those that meet your investment objectives. This ensures that when comparing one fund with another, you are comparing funds with similar objectives or with similar underlying assets.
To view the IMA fund classification system chart, click here. For a list of the sector definitions, read on.
FUNDS PRINCIPALLY TARGETING CAPITAL PROTECTION
Funds which invest at least 95% of their assets in money market instruments (i.e. cash and near cash, such as bank deposits, certificates of deposit, very short term fixed interest securities or floating rate notes).
Funds, other than money market funds, which principally aim to provide a return of a set amount of capital back to the investor (either explicitly guaranteed or via an investment strategy highly likely to achieve this objective) plus some market upside.
FUNDS PRINCIPALLY TARGETING INCOME (BY ASSET CATEGORY)
FIXED INCOME SECTORS
Funds which invest at least 95% of their assets in Sterling denominated (or hedged back to Sterling) triple AAA rated, government backed securities, with at least 80% invested in UK government securities (Gilts).
Funds which invest at least 95% of their assets in Sterling denominated (or hedged back to Sterling) triple AAA rated government backed index linked securities, with at least 80% invested in UK Index Linked Gilts.
Funds which invest at least 80% of their assets in Sterling denominated (or hedged back to Sterling), Triple BBB minus or above corporate bond securities (as measured by Standard & Poors or an equivalent external rating agency). This excludes convertibles, preference shares and permanent interest bearing shares (PIBs).
Funds which invest at least 80% of their assets in Sterling denominated (or hedged back to Sterling) fixed interest securities. This includes convertibles, preference shares and permanent interest bearing shares (PIBs). At any point in time the asset allocation of these funds could theoretically place the fund in one of the other Fixed Interest sectors. The funds will remain in this sector on these occasions since it is the Manager's stated intention to retain the right to invest across the Sterling fixed interest credit risk spectrum.
Funds which invest at least 80% of their assets in Sterling denominated (or hedged back to Sterling) fixed interest securities and at least 50% of their assets in below BBB minus fixed interest securities (as measured by Standard and Poors or an equivalent external rating agency), including convertibles, preference shares and permanent interest bearing shares (PIBs).
Funds which invest at least 80% of their assets in fixed interest securities. All funds which contain more than 80% fixed interest investments are to be classified under this heading regardless of the fact that they may have more than 80% in a particular geographic sector, unless that geographic area is the UK, when the fund should be classified under the relevant UK (Sterling) heading.
Note:
1. Across all fixed income sectors there is no prescription within the non core parameters. Firms are reminded that, whilst the sectors provide freedom in respect of investment in the non-core element of the definitions, the investment strategy adopted must be transparent to the end customer, appropriate to deliver on the fund objective and take account of the firm's TCF (Treating Customers Fairly) obligations.
2. Convertibles, preference shares and permanent interest bearing shares (PIBs) are excluded from the investment grade and government percentage in the fixed income sector classifications. This will allow a small holding in these instruments in the higher quality funds, and not inhibit investment in them for the higher risk/higher return funds.
4. Derivative usage should be within the spirit of the sector restrictions and not lead to the actual exposure of the fund being outside the set limits of its sector. This will be self policed (for now). The IMA does not wish to inhibit funds from using their full UCITS III powers, whilst recognizing the limitations on monitoring at the present time.
5. In the gilt/bond sectors, a security with 0-3 months to maturity will be treated as cash. Securities maturing within 3-12 months will be treated as bonds.
Funds which invest at least 80% of their assets in the UK, between 20% and 80% in UK fixed interest securities and between 20% and 80% in UK equities. These funds aim to have a yield in excess of 120% of the FTSE All Share Index.
Note:
1. Please refer to any relevant Fixed Income notes
2. In the managed (mixed asset) sectors (Cautious Managed, Balanced Managed, Active Managed and UK Equity and Bond Income) cash and fixed income will be treated as interchangeable.
3. Hybrid instruments, such as convertibles, preference shares or PIBs should not contribute to the minimum 20% required in UK fixed income or UK equity.
4. Instruments that require clarification as to their treatment within the asset categories should not be used to contribute to the core parameters. Clarification of treatment can be sought from the monitoring company.
Funds which invest at least 80% in UK equities and which aim to achieve a historic yield on the distributable income in excess of 110% of the FTSE All Share yield at the fund's year end.
General Notes (applying to UK Equity Income and UK Equity Income and Growth sectors):
1. To ensure compliance with the sector criteria, funds should supply data for monitoring to enable the calculation of historic yield based on the IMA guidelines set out in "Yield Calculation and Disclosure by UK Authorised Funds - Guidelines for Managers Sept 2007".
2. IMA reserves the right to amend the yield parameters of the UK Equity Income and the UK Equity Income and Growth sector(s) up or down to account for market factors.
3. IMA reserves the right to adjust the relative yield parameter tests for the UK Equity Income sector and the UK Equity Income and Growth sector should market conditions indicate that this is necessary to ensure the integrity of both sectors.
4. The term "aim" is retained and will have discretionary application to be decided on a case by case basis by IMA/the PCRC. It is not retained to suggest that the yield test is aspirational. As a broad indicator, it could be used for a fund that has to deal with very large cash flows into the fund over a short period, which may impact on the fund's ability in the short term to meet the yield parameter test.
Funds which invest at least 80% of their assets in UK equities, aim to have a historic yield on the distributable income in excess of 90% of the yield of the FTSE All Share Index at the fund's year end and which aim to produce a combination of both income and growth.
Note:
a. On occasions a number of funds may find that their yield at the fund's year end is high enough to qualify for inclusion in the UK Equity Income sector. These funds would remain in the UK Equity Income and Growth sector on these occasions since it is the Manager's stated intention to operate the fund to optimize between capital and income returns.
General Notes (applying to UK Equity Income and UK Equity Income and Growth sectors):
1. To ensure compliance with the sector criteria, funds should supply data for monitoring to enable the calculation of historic yield based on the IMA guidelines set out in "Yield Calculation and Disclosure by UK Authorised Funds - Guidelines for Managers Sept 2007".
2. IMA reserves the right to amend the yield parameters of the UK Equity Income and the UK Equity Income and Growth sector(s) up or down to account for market factors.
3. IMA reserves the right to adjust the relative yield parameter tests for the UK Equity Income sector and the UK Equity Income and Growth sector should market conditions indicate that this is necessary to ensure the integrity of both sectors.
4. The term "aim" is retained and will have discretionary application to be decided on a case by case basis by IMA/the PCRC. It is not retained to suggest that the yield test is aspirational. As a broad indicator, it could be used for a fund that has to deal with very large cash flows into the fund over a short period, which may impact on the fund's ability in the short term to meet the yield parameter test.
FUNDS PRINCIPALLY TARGETING GROWTH (BY ASSET CATEGORY)
Funds investing at least 80% of their assets in Sterling denominated (or hedged back to Sterling), and at least 80% of their assets in zero dividend preference shares or equivalent instruments (i.e. not income producing). This excludes preference shares which produce an income.
UK Equities
Funds which invest at least 80% of their assets in UK equities which have a primary objective of achieving capital growth.
Note:
1. Instruments that require clarification as to their treatment within the asset categories should not typically be used to contribute to the core parameters. Clarification of treatment can be checked with the monitoring company.
2. The "look-through" principle will apply when considering securities that are structured with the legal form of an equity (such as a listed investment trust and some listed ETFs), but manage or invest in different underlying assets such as property, commodities, etc. Where such entities themselves invest in equities, the holdings are classified as equities. Further details may be obtained from the monitoring company.
Funds which invest at least 80% of their assets in UK equities of companies which form the bottom 10% by market capitalisation.
Note:
1. The universe of eligible UK equities is constructed by the monitoring company and comprises all relevant securities available from the Reuters database from which a market capitalisation cut-off is derived.
2. Instruments that require clarification as to their treatment within the asset categories should not typically be used to contribute to the core parameters. Clarification of treatment can be sought from the monitoring company.
3. The" look-through" principle will apply when considering securities that are structured with the legal form of an equity (such as a listed investment trust and some listed ETFs), but manage or invest in different underlying assets such as property, commodities, etc. Where such entities themselves invest in equities, the holdings are classified as equities. Further details may be obtained from the monitoring company.
Overseas Equities
Funds which invest at least 80% of their assets in Japanese equities.
Funds which invest at least 80% of their assets in Japanese equities of companies which form the bottom 30% by market capitalisation.
Funds which invest at least 80% of their assets in Asia Pacific equities including a Japanese content. The Japanese content must make up less than 80% of assets.
Funds which invest at least 80% of their assets in Asia Pacific equities and exclude Japanese securities.
Funds which invest at least 80% of their assets in North American equities.
North American Smaller Companies
Funds which invest a least 80% of their assets in North American equities of companies which form the bottom 20% by market capitalisation.
Funds which invest at least 80% of their assets in European equities. They may include UK equities, but these must not exceed 80% of the fund's assets.
Funds which invest at least 80% of their assets in European equities and exclude UK securities.
Funds which invest at least 80% of their assets in European equities of companies which form the bottom 20% by market capitalisation in the European market. They may include UK equities, but these must not exceed 80% or the fund's assets. (‘Europe' includes all countries in the MSCI/FTSE pan European indices.)
Funds which invest at least 80% of their assets in equities (but not more than 80% in UK assets) and which have the prime objective of achieving growth of capital.
Funds which invest 80% or more of their assets directly or indirectly in emerging markets as defined by the World Bank, without geographical restriction. Indirect investment e.g. China shares listed in Hong Kong, should not exceed 50% of the portfolio.
Note:
1. Where uncertainty arises about which countries are included in a specific regional equity sector please make reference to the relevant FTSE or MSCI index for guidance. Where there is a difference the broader index should be used.
2. The above sectors also require funds to be broadly diversified within the relevant country/region/asset class. Funds that concentrate solely on a specialist theme, sector or single market size (or a single country in a multi-currency region) would be incorporated in the Specialist sector (see below), or in the case of tech funds, in the Technology & Telecommunications sector.
3. In the smaller companies sectors the universe of eligible equities is constructed by the monitoring company and comprises all relevant securities available from the Reuters database from which a market capitalisation cut-off is derived.
4. The "look-through" principle will apply when considering securities that are structured with the legal form of an equity (such as a listed investment trust and some listed ETFs), but manage or invest in different underlying assets such as property, commodities, etc. Where such entities themselves invest in equities, the holdings are classified as equities. Further details may be obtained from the monitoring company.
5. Instruments that require clarification as to their treatment within the asset categories should not typically be used to contribute to the core parameters. Clarification of treatment can be sought from the monitoring company.
FTSE® is a trade mark of London Stock Exchange Plc and The Financial Times Limited and is used by FTSE under licence. All rights in the FTSE Indices vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE Indices or underlying data.
MIXED ASSET SECTORS Cautious ManagedFunds investing in a range of assets with the maximum equity exposure restricted to 60% of the fund and with at least 30% invested in fixed interest and cash. There is no specific requirement to hold a minimum % of non UK equity within the equity limits. Assets must be at least 50% in Sterling/Euro and equities are deemed to include convertibles.
Funds would offer investment in a range of assets, with the maximum equity exposure restricted to 85% of the Fund. At least 10% of the total fund must be held in non-UK equities. Assets must be at least 50% in Sterling/Euro and equities are deemed to include convertibles.
Funds would offer investment in a range of assets, with the Manager being able to invest up to 100% in equities at their discretion. At least 10% of the total fund must be held in non-UK equities. There is no minimum Sterling/Euro balance and equities are deemed to include convertibles. At any one time the asset allocation of these funds may hold a high proportion of non-equity assets such that the asset allocation would by default place the fund in either the Balanced or Cautious sector. These funds would remain in this sector on these occasions since it is the Manager's stated intention to retain the right to invest up to 100% in equities.
Note:
1. The "look-through" principle will apply when considering securities that are structured with the legal form of an equity (such as a listed investment trust and some listed ETFs), but manage or invest in different underlying assets such as property, commodities, etc. Where such entities themselves invest in equities, the holdings are classified as equities. Further details may be obtained from the monitoring company.
2. In the managed (mixed asset) sectors (Cautious Managed, Balanced Managed, Active Managed and UK Equity and Bond) cash and fixed income will be treated as interchangeable.
Funds managed with the aim of delivering absolute (i.e. more than zero) returns in any market conditions. Typically funds in this sector would normally expect to deliver absolute (more than zero) returns on a 12 months basis
Note:
1. Funds are classified to and remain in this sector on the basis of self election by firms with qualitative oversight by the Performance Category Review Committee (PCRC).
2. There is no asset based monitoring for this sector. Consideration should be given by those listing in this sector to the obligation for Treating Customers Fairly (TCF).
3. Performance comparisons are inappropriate due to the diverse nature of the objectives of the funds populating this sector, including differing benchmarks, risk characteristics and timeframes for delivering performance.
4. Absolute returns are made in the base currency of the fund. Investors may be subject to currency losses should the base currency be different to their domiciled/invested currency. Currently, only funds that are trying to achieve an absolute return in Sterling are classified to the sector.
5. Funds listed in this sector do not guarantee returns.
Funds which are only available for use in a personal pension plan or FSAVC (Free Standing Additional Voluntary Contribution) scheme.
Present arrangements for unit trust personal pension schemes require providers to set up separate personal pension unit trust under an overall tax sheltered umbrella. These funds then in turn invest in the group's equivalent mainstream trusts. Pension funds are not to be confused with "Exempt" funds which are flagged separately.
Funds which predominantly invest in property. In order to invest "predominantly" in property, funds should either:
- invest at least 60% of their assets directly in property; or
- invest at least 80% of their assets in property securities; or
- when their direct property holdings fall below the 60% threshold for a period of more than 6 months, invest sufficient of the balance of their assets in property securities to ensure that at least 80% of the fund is invested in property, whereupon it becomes a hybrid fund.
Notes:
1. Funds falling into the first two categories will be flagged as "Direct Property funds" and "Property Securities funds" respectively.
2. If a fund has a minimum of 80% in property (direct and securities), but does not exceed the 60% direct property threshold, then it is a "Hybrid Property fund".
3. Property securities are admissible assets within the investment limits indicated if included in an appropriate, independently constructed index.
4. Property securities held within the 80% limit are intended to be equities.
5. IMA expect that member firms will follow good practice guidelines when using techniques to value property assets.
6. Newly launched property funds which are intending to invest directly in physical property will be permitted a period of 12 months to come into compliance with the sector definition. The funds will be asked to make an appropriate commitment at the outset to the IMA.
Funds that have an investment universe that is not accommodated by the mainstream sectors. Performance ranking of funds within the sector as a whole is inappropriate, given the diverse nature of its constituents.
Technology & Telecommunications
Funds which invest at least 80% of their assets in technology and telecommunications sectors as defined by major index providers.
UNCLASSIFIED
Funds which do not want to be classified into other IMA sectors such as private funds or funds which have been removed from other IMA sectors due to non compliance.
IMA collects static data on these funds and they contribute to the assets and flows data provided in the IMA monthly statistics.