HLMM High Income IA sector change

James Harrington - Product Specialist

21 December 2022

HLMM High Income IA sector change

To aid investors in making like-for-like comparisons between funds, for instance, to look at performance and fund charges, it is common for fund management companies, such as Hargreaves Lansdown Fund Managers, to assign a "comparator benchmark" to a fund. Using a benchmark as a comparator does not constrain the way a fund is managed, nor does it act as a target for the fund to meet. Instead, it provides a helpful tool against which investors may measure fund performance.

One provider of such benchmarks is the Investment Association (IA). They provide comparisons for over 50 sectors based on whether a fund's objective is designed to deliver income or growth, capital protection or has a specialist investment objective.

These sectors are then further broken down based on the main asset class of a fund, for example, equities or bonds, as well as the geographical focus of the fund, such as the UK, Europe, or the USA, amongst others.

For multi-asset funds, however, the sector is based on the combination of asset classes within a fund and contains four mixed asset class sub-sectors.

Upon launching the HLMM High Income Fund in 2016, the managers felt that, as the fund strategy may develop over time, the most suitable of the four multi-asset sectors for investors to compare the fund against would be the IA's "Flexible Investment" sector. As the title suggests, this sector allows managers to have considerable flexibility in how a fund can be managed. This flexibility includes the potential for a fund to be invested 100% in equities.

The result of this investment flexibility is that this sector includes a wide variety of funds, many of which will have very different objectives and mix of assets. This variety can make comparisons of performance difficult for investors.

The experience of the managers since launching the HLMM High Income Fund is that the fund has been in the past, and is anticipated to be in the future, managed within the parameters of one of the other multi-asset sectors, the "Mixed Investment 20-60% Shares" sector.

Unlike the "Flexible Investment" sector, funds in this sector are required to hold a range of different investments. The fund must have between 20% and 60% invested in company shares (equities), and at least 30% of the fund must be in fixed income investments (for example, corporate and government bonds) or "cash" investments.

Based on this experience, HLFM requested the Investment Association reclassify the Fund, and, following submission of our fund data, and a review by the IA's independent sectors committee, since 4 August 2022 the Fund has been listed by the IA under this "Mixed Investment 20-60% Shares" sector.

As a result of this sector move, the benchmark used for comparing the fund's historical performance, the "comparator benchmark" changed to that of the "Mixed Investment 20-60% Shares" sector on 28 November 2022.

This change will have no impact on the performance, or risk profile, of the fund going forward, instead, it will allow fund investors to compare better how the fund has performed against other funds that may have a similar asset mix or objective. As always, past performance isn’t a guide to the future.

The prospectus of the Fund has been amended to reflect the change of comparator benchmark, along with the Key Investor Information and any other documentation in which the comparator benchmark is shown or described.

It is important to understand that for HLMM High Income Fund, regardless of the sector that the fund appears in, or the comparator benchmark used, the managers will not be constrained by the sector or comparator.

The IA conducts regular monitoring, analysing a fund's portfolio holdings to check that each fund meets the sector parameters and will remove funds that do not meet its criteria for inclusion. As an investor in the Fund, you do not need to take any action as a result of this change. However, if you require any further information, please contact us. All investments can fall as well as rise in value so you could get back less than you invest.

For more information on the Investment Association, and the methodology they use for assigning sector classifications, please visit their website at IA's website.