Do the IMA Mixed Investment names need a rethink?

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Initially I was positive on the IMA’s solution for the new names for the managed sectors being changed to the new “Mixed Investment” sectors.

After all, there had been a lot of debate around the subject and clearly there was no solution everyone could agree on.

The trouble is – now the new names are in place – you can experience first-hand how people have adjusted to them. Several times I have been at an investment seminar or forum and overheard various delegates discussing the sectors.

More often than not the sector was referred to as “the sector formerly known as…”. This highlights the fact that people will take the easiest route to describe something and currently professional advisers are struggling to adjust to the new names.

There is also another reason to reconsider the sector names.

The reference to the share exposure makes assumptions on how risk is identified. Highlighting only one asset class in the title could create misunderstandings.

Yet, the fact remains that the risk of an asset class changes over time.

Indeed, the perceived risk of an asset class can change frequently; in times of crisis, equities are seen as very risky and investors move out of the asset class and shares become cheaper. The risk-reward dynamic has changed but the perception is slow to catch up.

Finally, risk can also be measured in relation to other asset classes. Only putting the exposure to shares in the sector name could well lead to a mis-representation of the risks being taken in a fund.

While time might help address the first issue, the second one is not likely to go away. 

The IMA should be applauded for making a change but it cannot rest on its laurels. The recent changes need to be monitored and amended to ensure they are successful.


Adrian Lowcock is senior investment adviser at Bestinvest.

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Readers' comments (1)

  • I think the percentage in Equity is a good descriptor. I agree completely that these might cause confusion over risk levels - a fund with high bond percentage (low equity) may be higher risk than one with a more diversifed mix (and higher equity). But I think IMA are right to avoid incorporating any risk rating in the sector names.

    You are right that the challenge is to understand the risks inherent in any fund - that's the value of advice!

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