The ISA Adviser

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 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 protected or via an investment strategy highly likely to achieve this objective) plus the potential for some investment return.

Note:
Funds in this sector typically offer a strategy which protects all or part of the investors' capital. Depending on the type of protection provided investors may be exposed to the risk of counterparty default and with some types of fund may not get back their original investment if encashing early.  Investors may need to seek investment advice to ascertain the quality of the protection on offer.

UK Gilt

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.

Note:

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.

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.

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.

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.

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.

UK Equity & Bond Income

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:

Please refer to any relevant Fixed Income notes

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.

Hybrid instruments, such as convertibles, preference shares or PIBs should not contribute to the minimum 20% required in UK fixed income or UK equity.

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.

UK Equity Income

Funds which invest at least 80% in UK equities and which intend 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.

Note:

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 September 2007".

2. Funds are required to submit yield data at the fund's year end to the sector team at IMA, and at the mid-year when notified by IMA.

3. To ensure compliance with the intended 110% yield, funds in the sector will be tested over 3 year rolling periods by taking a simple average of the yield figure achieved for each fund at its year end. Funds that fail to meet the 110% average yield for each 3 year rolling period will be removed from the sector. (As an illustration, this would require a fund that delivered 90% in the first year and 100% in the second year to deliver a yield of 140% in the third year, if it were to be allowed to remain in the sector.)

4. Annually, at the fund's year-end, each fund in the sector must achieve a yield of not less than 90% of the FTSE All Share yield. Funds that fail to do so will be removed from the sector.

5. IMA will measure yield to one decimal place.

6. IMA will consider adjusting the yield parameters of the sector up or down to account for extraordinary market factors when a request is made by funds in the sector representing either 50% by number or 80% by value.

7. To assist users of the sectors and aid comparison, IMA will publish the annual yield achieved by each fund in the sector.

UK All Companies

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

Note:

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.

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.

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.

Note:

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.

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.

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.

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.

China / Greater China

Funds which invest at least 80% of their assets directly or indirectly in equities of the People's Republic of China, Hong Kong or Taiwan. Funds may invest in one or more of the countries.

Note:

1. Equity investment will be monitored by reference to companies listed on one or more of the stock exchanges of mainland China, Hong Kong or Taiwan.

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% of the fund's assets. ('Europe' includes all countries in the MSCI/FTSE pan European indices.)

Global

Funds which invest at least 80% of their assets globally in equities. Funds must be diversified by geographic region.

Notes:

1. The main focus of funds which elect to be classified to this sector should be geographic diversification.

2. Funds which qualify for a UK, regional or the Global Emerging Markets equity sector will be excluded.

3. Funds may elect to be classified to the Global sector on the basis of geographic diversification even where a style or thematic bias exists - for example Global Consumer funds, Global Climate Change funds, Global Income funds, Global Smaller Companies funds.

4. Global funds which focus solely on a single industry sector may also elect to be classified to the Global sector, subject to maintaining geographic diversification - for example all types of Global Commodity funds (Agriculture/ Resources/Gold), Global Financials, Global Pharmaceuticals funds.

Global Emerging Markets

Funds which invest 80% or more of their assets in emerging market equities as defined by the relevant FTSE or MSCI Global Emerging Markets index.

General notes to regional equity sectors:

1. The above sectors require funds to be broadly diversified within the relevant country/region or globally. Funds that invest solely in a specialist theme (for example an agricultural commodities fund) and/or a single country in a multi currency region (for example a German fund) and/or in assets of a particular market capitalisation (for example an Asia Pac small cap fund) and/or a single industry sector (for example a gold fund) must still meet the required geographic dispersion based on the relevant FTSE or MSCI index. Funds that fail to meet the diversification criteria may be incorporated in the Specialist sector (see below). Exceptions are funds with a focus on China which are classified to the China /Greater China sector and tech funds which are classified to the Technology & Telecommunications sector.

2. 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.

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 Thomson Reuters database from which a market capitalisation cut-off is derived.

4. 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.

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% 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.

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% 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:

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.

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.

Absolute Return

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:

Funds are classified to and remain in this sector on the basis of self election by firms with qualitative oversight by the Sectors Committee.

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).

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.

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.

Funds listed in this sector do not guarantee returns.

Property

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:

Funds falling into the first two categories will be flagged as "Direct Property funds" and "Property Securities funds" respectively.

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".

Property securities are admissible assets within the investment limits indicated if included in an appropriate, independently constructed index.

Property securities held within the 80% limit are intended to be equities.

IMA expect that member firms will follow good practice guidelines when using techniques to value property assets.

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.

Specialist

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.