The European Fund and Asset Management Association (EFAMA) has published a report which presents a complete set of categories to facilitate the use of the European Fund Classification (EFC) by all industry stakeholders.
The EFC is a pan-European classification system of investment funds that has been developed by the European Fund Classification Forum – a working group of EFAMA – 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. It will also enable meaningful comparisons between funds and their peer groups within a system of fund categories that is transparent and fully defined. The publication of the EFC categories will also facilitate the adoption of the EFC for the classification of both cross-border and domestic funds.
Under this system, the investment fund universe is split into 6 types of funds:
Equity, bond, multi-asset and money market funds: these funds typically aim to achieve returns higher than a benchmark index, within a universe that is segmented according to eight criteria: country/region, sector, market capitalization, currency, credit quality, interest rate, emerging market exposure and asset allocation.
Absolute Return Innovative Strategies (ARIS) funds: these funds 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.
Other funds: these funds fall outside the main EFC categories because they use specialist investment strategies such as capital protected, real estate, convertibles.
The publication of the EFC categories report is accompanied by a spreadsheet showing in which EFC categories 3,296 cross-border funds (13,048 share classes) belong to. These funds are promoted by 125 fund managers, including many belonging to the largest European fund management groups.
Peter De Proft (pictured), Director General of EFAMA, says: “With the publication of this new report, EFAMA confirms its 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.”