RDR flooding market with “confusing” Specialist funds
The growing popularity of the IMA’s most ambiguous sector ahead of RDR's January introduction has led critics to wonder if the new regulations will make the industry less transparent instead of more so.
RDR is driving an increase in the number of funds in the IMA Specialist sector, leading some critics to raise questions about the programme's effectiveness before it has even been introduced.
Thames River Multi-Capital’s latest FundWatch report shows fund launches were down from 32 in the fourth quarter of 2011 to 18 in the first quarter of 2012, with six of the new portfolios classed as specialist.
Three of these funds were from Invesco Perpetual’s Balanced Risk series, which aims to target a volatility range and comply with the requirements of the Retail Distribution Review (RDR).
, co-head of the F&C Thames River Multi-Capital team, commented: "With too many funds in the market for investors to choose from already, it is pleasing to see a drop-off in the number of funds launched to UK investors in Q1."
"What FundWatch does show is an increasing number of funds being launched in the Specialist sector, which cannot be accommodated by mainstream sectors, including risk-rated funds."
"These are becoming increasingly popular with advisers looking for solutions to efficiently classify risk for their clients."
"This is a trend we expect to continue over the next quarter as the deadline for RDR implementation looms near."
Tim Cockerill, head of collectives research at Rowan Dartington, says that Specialist sector
funds present an extra hurdle for investors.
"It’s a difficult sector to compare funds in because you have such a mish-mash, so you can’t run a straightforward analysis of it."
Data from FE Analytics
shows that a range of Allianz RiskMaster funds have been launched in the past three months, supporting the trend towards risk-targeted portfolios.
These funds are a relatively new concept and often find themselves in the Specialist sector due to the lack of a more appropriate destination.
Cockerill advises investors to do their homework carefully before buying into products such as these.
"When asset managers come up with new strategies, sometimes they are responding to investors’ needs, but sometimes they come up with an idea they think they can create a market for," he said.
Other funds launched into the sector since the end of the study period include multi-manager portfolios Sarasin Global Equity Fund of Funds and Sarasin Global Diversified Fund of Funds.
Multi-manager funds are also not currently classed together in a sector, making it harder for investors to find meaningful information on how they compare.
According to FundWatch,
in the second quarter
the new fund with the best ranking in comparison to its peer group was Harry Nimmo's Standard Life Global Smaller Companies.
It was a fifth-percentile performer in the IMA Global sector, although in absolute terms it lost 0.54 per cent of its value.
Performance of fund vs sector since launch
Source: FE Analytics
According to FE data, the portfolio is up 4.26 per cent since its launch in January 2012, compared with a loss of 2.34 per cent from the average Global fund.
The worst absolute performance for a new fund was that of the M&G International Specialist Equity fund, from the IMA Global sector, which fell by 8.56 per cent.
Run by David Williams – who is also the deputy manager of the £7bn M&G Recovery fund – the new offering was launched as a result of the merger between the Prudential Global Growth trust and new assets.
FundWatch also lists the sectors with the highest number of consistently performing funds over the past three years.
Only 180 out of a possible 1,237 funds consistently delivered above-average returns in the period, with the IMA Global Bond and IMA Sterling Strategic Bond sectors the worst performers.
The IMA Global Emerging Market sector was the most consistent, a second vote of confidence in the sector after Bestinvest’s dog fund report showed it had the fewest underperformers over a three-year period