Friday 30 November 2018 11:50 am

Investment Association launches consultation on including exchange traded funds in its sectors

Jess Clark is a City A.M. news reporter covering retail and property.

Jess Clark is a City A.M. news reporter covering retail and property.

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The Investment Association could include exchange traded funds (ETFs) in its fund sectors, the industry body announced today as it launched a consultation on the topic.

ETFs are investment funds where shares are traded on a stock exchange and can be bought and sold at the current market price.

The sector system, which is designed to make it easier for investors to compare funds, is usually based on asset class, investment strategy or geographic region.

IA director of investment and capital markets Galina Dimitrova said: “We are continually monitoring the fund market to ensure that the IA sectors reflect the wide range of products the asset management industry has to offer savers.

“The primary purpose of the IA sectors is to serve the needs of consumers and their advisers and the addition of ETFs must be done in their best interests.”

AJ Bell head of active portfolios Ryan Hughes said: “ETFs are an investment structure, they are not a way of investing and therefore if you’re adding ETFs why are you not adding investment trusts?

“If what you’re doing is saying let’s have one sector for all funds, then it should include ETFs, funds and investment trusts, and surely that’s what they are saying here.

“If the IA are doing this for the sake of adding a load of passive funds to sectors then that just adds more confusion for investors.

“The inclusion of passive funds will mean that where you have got lots of passive funds in a sector they will occupy the bottom of the second quartile and the top of the third quartile, and active funds will sit above and below that – and that feels like a move that will create confusion for investors.”

Chelsea Financial Services managing director Darius McDermott said: “My view is that if it is a standard ETF, for example one that invests in UK equities, then it would be fine to add to the UK All Companies sector. ETFs are gaining popularity and are being more widely used, so it would seem a sensible and useful outcome.

"My objection would be if it has leverage, for example, as this would not be a like for like comparison.

"So the IA will need to make sure that the ETFs go into the appropriate sectors. “