The Investment Association (IA), the trade body that represents the UK’s fund management industry, has added ETFs to its fund sectors for the first time.

Jonathan Lipkin, Director for Policy, Strategy and Research, The Investment Association.

The IA’s classification framework offers a tool for navigating the open-ended fund market by dividing funds into broad groups based on factors such as asset class, investment strategy, and geographical region.

The sectors are designed to help investors and advisers compare and contrast similar funds.

Over 530 ETFs have now been included within the framework – only UK or EU domiciled UCITS ETFs with HMRC reporting fund status are eligible.

The ETFs are provided by some of Europe’s largest ETF issuers including Amundi, BlackRock, Fidelity, First Trust, Franklin Templeton, HSBC Asset Management, JP Morgan Asset Management, Legal & General Investment Management, Lyxor, Vanguard, and Xtrackers.

The inclusion of ETFs in the IA sectors has precipitated wider changes to the IA’s classification system, particularly with regards to fixed income funds.

The Global Bonds sector, which would have increased in size by 50% (129 ETFs), has been split into 14 new sectors based on bond type, credit risk, and currency criteria.

Following these changes, the IA’s sectors now cover over 4,100 funds across 52 fund sector classifications.

Jonathan Lipkin, Director for Policy, Strategy, and Research at the Investment Association, said: “ETFs are a rapidly growing part of the UK fund market. Their inclusion in the IA sector framework recognizes this, helping savers and their advisers to make comparisons and choose funds to meet their long-term financial goals.”

Laith Khalaf, Financial Analyst at AJ Bell, said: “The inclusion of ETFs in the Investment Association sectors may sound like an arcane technical development, but it marks another step into the mainstream for ETF investing in the UK. It will bump up the visibility and comparability of ETFs, and provide a further competitive challenge to active funds and index trackers.”

Joe Parkin, Head of Banks and Digital Channels in the UK at BlackRock, said: “The inclusion of ETFs in the Investment Association’s sectors reflects the increasingly important role that indexing is playing in the UK Wealth market. We expect that the UK is entering a period of accelerated growth for indexing across wealth portfolios and that current levels of 10-20% within the portfolios of financial advisors, traditional wealth managers, and private banks are expected to double in the next four years. The ability to make like-for-like comparisons between the full range of investment funds available in the UK will be a huge benefit for retail investors and advisers as they select appropriate products for their investment objectives.”