Simon Read: Scrapping 'cautious' will add to confusion

There was good news for investors this week: confusing fund sector names will be scrapped to "bring about a better understanding of the sectors and how they fit together," as Jane Lowe, director of markets at the Investment Management Association, put it.

The move will see the end of the confusing fund sectors named Cautious Managed, Balanced Managed and Active Managed. As the IMA rightly concludes, investors have never really understood what the titles mean. And that kind of confusion is a recipe for putting your cash in the wrong funds.

The IMA set up a review last autumn to look at the titles and seek out improvements. It consulted experts in the funds industry and the wider financial sector, and some months later, has finally released details of what the new sectors will be called. But it's far from an improvement.

From July, the three confusing Managed sectors will be renamed Managed A, Managed B and Managed C. Further a new sector, to be called Managed D, will be created next January for funds which should offer less risk than those in the current Cautious Managed sector.

The new names will make them as clear as mud. The IMA says: "The new sector names have been chosen in order to highlight that the funds are in some way managed."

Hmm, that doesn't make things much clearer to me. Patrick Connolly, of the financial advisers AWD Chase de Vere, is critical of the changes. He says: "Using the headings Managed A, Managed B, Managed C and Managed D will provide little clarification or understanding for consumers. If anything it may confuse them still further."

Gary Shaughnessy, of the fund manager Fidelity International, is also critical. "To say we are disappointed in the outcome to this review is an understatement. The IMA has said that it is important that these sectors are properly understood by investors, but in our opinion the new sector differentiations are meaningless and actually increase the opacity for investors."

There's also disappointment that the IMA hasn't acted as yet to change the misleading Absolute Return sector. As Connolly says: "The name Absolute Return gives the perception of security and implies that funds will give a positive return in all environments. This is clearly not the reality."

The opportunity was there to improve our understanding of different investment funds. The IMA appears to have – to put it in plain English – completely cocked it up.