Sector Definitions and Classification

There are over 2000 investment funds to choose from.  But 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’.  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 INCOME - IMMEDIATE INCOME

UK Gilts

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).

UK Index Linked 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.

£ Corporate Bond

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).

£ Strategic Bond

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.

£ High Yield

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).

Global Bonds

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.

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. 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.

3. Where ratings of a bond differ between the rating agencies it is for the firm to decide which rating is relevant, taking account of their own assessment of the security of the bond.  Consideration should be given to what would result from the most cautious interpretation or if an average of the ratings were adopted.

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.

6. In the managed sectors (Cautious Managed, Balanced Managed, Active Managed and UK Equity and Bond), cash and fixed income will be treated as interchangeable.

UK Equity Income

Funds which invest at least 80% in UK equities and which aim to achieve a yield on the distributable income in excess of 110% of the FTSE All Share yield.

Note:

1. To ensure compliance with the sector criteria, funds should supply data for monitoring to enable the calculation of yield based on the IMA guidelines set out in Yield Calculation and Disclosure by UK Authorised Funds - Guidelines for Managers Sept 2007.

FUNDS PRINCIPALLY TARGETING CAPITAL - CAPITAL GROWTH/TOTAL RETURN

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 All Companies

Funds which invest at least 80% of their assets in UK equities which have a primary objective of achieving capital growth.

UK Smaller Companies

Funds which invest at least 80% of their assets in UK equities of companies which form the bottom 10% by market capitalisation.

Japan

Funds which invest at least 80% of their assets in Japanese equities.

Japanese Smaller Companies

Funds which invest at least 80% of their assets in Japanese equities of companies which form the bottom 30% by market capitalisation.

Asia Pacific including Japan

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.

Asia Pacific excluding Japan

Funds which invest at least 80% of their assets in Asia Pacific equities and exclude Japanese securities.

North America

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.

Europe including UK

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.

Europe excluding UK

Funds which invest at least 80% of their assets in European equities and exclude UK securities.

European Smaller Companies

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.)

Cautious Managed

Funds 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.

Balanced Managed

Funds would offer investment in a range of assets, with the maximum equity exposure restricted to 85% of the Fund.  At least 10% must be held in non-UK equities.  Assets must be at least 50% in Sterling/Euro and equities are deemed to include convertibles. 

Active Managed

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% 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. 

Global Growth

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.

Global Emerging Markets

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. 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.
   
   
2. For Cautious Managed please note the look-through principle will apply when considering securities that are legally equities but have different underlying assets such as property, commodities etc.
   
   
3. In the managed sectors (Cautious Managed, Balanced Managed, Active Managed and UK Equity and Bond), cash and fixed income will be treated as interchangeable.

FUNDS PRINCIPALLY TARGETING CAPITAL PROTECTION

Money Market

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).

Protected/Guaranteed Funds

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.

SPECIALIST SECTORS

Specialist

Technology & Telecommunications

Funds which invest at least 80% of their assets in technology and telecommunications sectors as defined by major index providers.