Fund sectors

A guide to where your money is being invested

Unit trusts and open-ended investment companies (OEICs) are divided into different groups, or sectors by the Investment Management Association (IMA).

There are two broad categories, Income and Growth, and each sector within these groups is made up of funds that invest in similar assets, the same stock market sector or in the same geographical region. A third Specialist category is home to funds that cannot be categorised under Income and Growth.

Income Funds
These are funds with an ‘immediate income’ objective:

UK Gilts – Funds which invest at least 95 per cent of their assets in sterling denominated (or hedged back to sterling) AAA rated UK government backed securities with at least 75 per cent invested in UK government securities (gilts).

UK Index-linked Gilts - Funds which invest at least 90 per cent of their assets in UK Index-linked government securities (gilts).

UK Corporate Bond – Funds which invest at least 80 per cent of their assets in sterling-denominated (or hedged back to sterling) bonds, BBB-minus or above bonds as measured by either Standard & Poor (S&P) or equivalent, Moody’s Baa or above. This excludes convertibles. S&P rates bonds from the most stable governments triple AAA. Blue chip companies are then AA or A and weaker companies are BBB, BB or B, and so on.

UK Other Bond – Funds investing at least 80 per cent of their assets in sterling-denominated (or hedged back to sterling) and at least 20 per cent of their assets in below BBB-minus bonds as measured by either S&P or equivalent, convertibles and preference shares.

Global Bonds – Funds which invest at least 80 per cent of their assets in fixed interest stocks. All funds which contain more than 80 per cent fixed interest investments are to be classified under this heading regardless of the fact that they may have more than 80 per cent in a particular geographic sector, unless that geographic area is the UK, when the fund should be classified under the relevant UK heading.

UK Equity & Bond Income – Funds which invest at least 80 per cent of their assets in the UK, between 20 per cent and 80 per cent in UK fixed interest securities and between 20 per cent and 80 per cent in UK equities. These funds aim to have a yield of 120 per cent or over of the FTSE All-Share index.

These are funds with a ‘growing income’ objective:

UK Equity Income – Funds which invest at least 80 per cent of their assets in UK equities and which aim to have a yield in excess of 110 per cent of the yield of the FTSE All-Share.

Growth Funds
These are funds with a ‘capital protection’ objective:

Money Market - Funds which invest at least 95 per cent 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.

These are funds that concentrate on ‘capital growth/total return’:

UK All Companies – Funds which invest at least 80 per cent of their assets in UK shares which have a primary objective of achieving capital growth.

UK Smaller Companies – Funds which invest at least 80 per cent of their assets in UK stocks that make up the bottom 10 per cent of the UK stock market.

Japan – Funds which invest at least 80 per cent of their assets in Japanese shares.

Japanese Smaller Companies – Funds which invest at least 80 per cent of their assets in Japanese stocks of companies which form the bottom 30 per cent by market capitalisation.

Asia Pacific including Japan – Funds which invest at least 80 per cent of their assets in Asia Pacific shares, including some Japanese. The Japanese element must make up less than 80 per cent.

Asia Pacific excluding Japan – Funds which invest at least 80 per cent of their assets in Asia pacific shares and exclude Japanese securities.

North America – Funds which invest at least 80 per cent of their assets in North American shares.

North American Smaller Companies – Funds which invest at least 80 per cent of their assets in North American equities of companies which form the bottom 20 per cent by market capitalisation.

Europe including UK – Funds which invest at least 80 per cent of their assets in European shares. They may include UK stocks, but these must not exceed 80 per cent of the fund’s assets.

Europe excluding UK – Funds which invest at least 80 per cent of their assets in European shares and exclude the UK.

European Smaller Companies – Funds which invest at least 80 per cent of their assets in European equities of companies which form the bottom 20 per cent by market capitalisation in the European market. They may include UK stocks, but these must not exceed 80 per cent or the fund’s assets. (‘Europe’ includes all countries in the MSCI/FTSE pan-European indices).

Cautious Managed – Funds would offer investment in a range of assets, with the maximum equity exposure restricted to 60 per cent and with at least 30 per cent invested in fixed interest and cash. There would be no specific requirement to hold a minimum percentage of non-UK equity. Assets must be at least 50 per cent in sterling/euro assets 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 per cent. At least 10 per cent must be held in non-UK stocks. Assets must be at least 50 per cent in sterling/euro assets 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 per cent in equities at their discretion. At least 10 per cent 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 the manager retains the right to invest up to 100 per cent in equities.

Global Growth – Funds which invest at least 80 per cent of their assets in equities (but not more than 80 per cent in UK assets) and which have the prime objective of achieving growth of capital.

Global Emerging Markets – Funds which invest 80 per cent 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 per cent of the portfolio.

In addition, the sectors above also require funds to be broadly diversified within the relevant country, region or 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 below.
UK Zeros – Funds investing at least 80 per cent of their assets in sterling denominated (or hedged back to sterling) and at least 80 per cent of their assets in zero dividend preference shares or equivalent instruments, this excludes preference shares which produce an income.

Specialist Funds
Specialist – Funds not categorised 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 per cent of their assets in technology and telecommunications shares as defined by major index providers.

Personal Pensions – Funds that are only available for use in a personal pension plan or free-standing additional voluntary contributions (FSAVC).