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AIC sector review

AIC sector review

To make it easier to compare similar funds, the Association of Investment companies (AIC) classifies its members into sector categories. To do this, it takes into account the aim and objective of the company and its investment policy. The idea is to allocate funds to sectors for the long-term and to avoid constant re-classification as their asset allocation changes. Funds are consulted about which sector they sit in.

One of the great things about the investment companies industry is that it is constantly evolving. Whole new investment areas open up and some old investment ideas become unfashionable and wither away. it makes sense therefore to conduct a wholesale review of the sectors and classifications every couple of years. Our website was updated over the weekend of 25/26 May 2019. For the time being, our data dropdown menu does not fully reflect the changes. Please bear with us, we are working to fix this. The Investment Companies page has links to all the new sectors, however. it might be the simplest way of accessing these.

Changes – Asia

Asia excluding Japan and Asia including Japan are being merged to form Asia Pacific. Two new sectors are being spun out – Asia Pacific Income and Asia Pacific Smaller Companies. For a long time Japan’s stock market was a dominant part of Asian markets and its economy was heavily influenced by exports to the US and Europe. It then made sense to split Japan from the rest of Asia and a number of pan-Asian funds decided to drop Japan from their remit. Witan Pacific was the only fund left in the Asia including Japan sector. The rise of China and the increased importance within Japan of exports to the rest of Asia meant that this distinction is not as relevant today. Small cap funds and income funds can perform quite differently from large cap funds.

Changes – Debt

The Debt sector, which has grown considerably over the past decade, is being divided up into a umber of smaller sectors. Direct Lending, Loans and Bonds,Structured Finance and Property – Debt

Changes – Private equity

A new sector – Growth Capital – is being spun out of the Private Equity sector. Private equity is quite a broad church. There is a clear difference between funds investing in established businesses –  often in structures that include both equity and debt finance – and those providing growth capital to earlier stage businesses.

Changes – Royalties

In recent years we have seen the emergence of a few funds investing in royalties. It made sense to give them their own sector.

Changes – Technology & Media

We made the point above that small cap funds perform quite differently to large cap ones. However, small and medium sized cap specialist technology trust, Herald Investment Trust, sits in a sector by itself and has done so for a long time. The small and large cap Technology & Media sectors are being merged. There would be an argument for reversing that decision if someone launches a competitor to Herald.

Changes – Property

In addition to the creation of a new Property – Debt sector, the Property – Asia Pacific sector is being broadened out to become Property – Rest of the world; the UK Property and Other Property sectors (officially Property Direct – UK and Property Specialist) are being reorganised into Property – UK Commercial, Property – UK Healthcare and Property – UK Residential. The changes reflect the loss of a number of Asian property funds (many of those still going are in run-off mode) and the launch of many more specialist UK property companies. If trends continue, next time around this sector could fragment further but it is equally likely that investing in Asian property will become more fashionable again – these things are hard to predict.

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