EFAMA revises European fund classification categories
A working group within the European Fund and Asset Management Association (EFAMA) has produced a set of fund classification categories to enable standardised, transparent and accurate comparison among cross border and domestic funds in all sectors.
The European Fund Classification (EFC) is a fully defined pan-European classification system of investment funds developed by the European Fund Classification Forum to allow all interested stakeholders, in particular fund distributors, to group cross-border funds with comparable investment strategies.
The classification of funds according to the EFC criteria is done by a neutral classification administrator on the basis of the funds’ portfolio holdings. The EFC categories will enable fund groups to identify the specific EFC category to which each of their funds belongs to.
Under the EFC system, the investment fund universe is broadly split into:
a) Equity, bond, multi-asset and money market funds. These typically aim to achieve returns higher than a benchmark index, within a universe segmented according to eight criteria: country/region, sector, market capitalization, currency, credit quality, interest rate, emerging market exposure and asset allocation.
b) Absolute Return Innovative Strategies (ARIS) funds: these are managed with the objective of generating a positive return over a cash benchmark, irrespective of market movements. In general, these funds make extensive use of derivatives to short-long securities or the market as a whole.
c) Other funds: these fall outside the main EFC categories because they use specialist investment strategies such as capital protected, real estate, convertibles.
The report on the EFC categories report is accompanied by a publicly-available EFAMA spreadsheet showing which categories the 3,296 cross-border funds (and 13,048 share classes) belong to. These funds are promoted by 125 fund managers.
The most populated EFC categories in each fund type and the number of share classes in each category are:
– Equity global advanced markets (1,222)
– Bond emerging global (382)
– Multi-asset global advanced markets balanced (144)
– Money market fund EUR (56)
– Multi-strategy ARIS (120)
– Convertibles (249)
Peter De Proft, director general of EFAMA, said the report and classification confirms EFAMA’s commitment to strengthen the positioning of UCITS as a well regulated and transparent investment product, ideally suited for retail investors.
“The EFC categories provide the European fund industry with a tool to support the UCITS brand with a single standard of fund classification designed to give distributors and their clients the confidence that the fund they select are true to their label,” he said in a statement.