ETFs to Be Included in IA Fund Sectors

Investors will be able to compare ETFs and active funds as the Investment Association reveals trackers will be included in its fund sectors

Holly Black 23 May, 2019 | 11:58AM

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The Investment Association is to include exchange-traded funds in its investment sectors.

The investment trade body said the move will help investors to compare ETFs against the 3,500 funds already included in its 37 fund sectors.

Tracker funds will now be listed in the existing sectors, which include UK All Companies, Global and Corporate Bonds, among others.

ETFs are funds which aim to track the performance of a particular index. This could be a stock market such as the FTSE 100 or S&P 500, or a more specific area such as high-yielding bonds or the technology sector.

Hortense Bioy, director of passive strategies at Morningstar, said: "This decision makes perfect sense and ETFs have always been included in Morningstar investment categories. Investors are looking to select the best approaches when constructing their investment portfolio, regardless of whether that means choosing a fund or an ETF."

Joe Parkin, head of UK sales at iShares, also welcomed the decision. He said: "ETFs have become a core part of porfolio construction and a must-have tool for investors."

The ETF industry has grown rapidly in recent years, with many investors attracted to the low cost of the funds. Investors can track the FTSE 100 through an ETF, for example, for as little as 0.06%. This compares with a typical fee of 0.75% across open-ended funds.

Morningstar research estimates that the amount held in ETFs by European investors could hit €1 trillion by 2020, and €2 trillion by 2024. Assets under management had already swelled to €760 billion at the end of March. Bioy anticipates that the inclusion of ETFs in the IA sectors will further increase demand for the products. 

ETF providers will have to apply to be included and only those which are UK-domiciled or EU-based with HMRC reporting fund status will be eligible. The change will take effect in the first quarter of 2020. 

Galina Dimitrova, director of investment and capital markets at the Investment Association, said: “We want to ensure the IA sectors reflect the full range of products the asset management industry has to offer. ETFs are a growing part of this market and their inclusion in the sectors will enable consumers to compare a wider variety of products.”

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About Author

Holly Black  is Senior Editor, Morningstar.co.uk

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