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Slide n° 1
23 June
2008
Brussels
The European Fund Classification
Peter De Proft, EFAMABernard Delbecque, EFAMA
Cora Gibbons, Allianz Global Investors
23 June 2008
The European Fund Classification
Peter De Proft, EFAMABernard Delbecque, EFAMA
Cora Gibbons, Allianz Global Investors
23 June 2008
Slide n° 2
23 June
2008
Brussels
Part I
Background
Part I
Background
Slide n° 3
23 June
2008
Brussels
Three main motivations
Current classification sectors too broad Wrong star ranking and questionable awards
Product development outpaced development of fund categorization Differing views on fund classification between fund providers and data vendors
Cross-border fund sales on the rise in Europe Need for a pan-European approach to sector / peer group classification
Creation of the European Fund Categorization Forum in 2002
Slide n° 4
23 June
2008
Brussels
Product creation in EuropeFund launches in % of number of funds
2000 2001 2002 2003 2004 2005 2006 2007 ytd2008
Equity 27% 21% 16% 12% 14% 16% 22% 18% 4%
Bond 19% 17% 15% 19% 15% 17% 17% 14% 3%
Mixed 23% 19% 15% 15% 15% 16% 19% 19% 6%
Money Market 13% 12% 13% 13% 9% 11% 10% 10% 4%
Total 23% 19% 15% 15% 14% 16% 19% 16% 4%
Source: Lipper Hindsight
Slide n° 5
23 June
2008
Brussels
Terms of reference of the EFCF
Composition: Cross-border fund managers and data vendors only
Purpose: To adopt a pan-European investment fund classification to enable investors and fund companies to truly compare like with like.
Strategy: To Review fund categories with a view to proposing clear new categories
Win-win “business model” Pooling of expertise from the business Mutual understanding of difficulties involved Collaborative approach to resolving challenges Data vendors’ support to bring the EFCF work to a wide audience
Slide n° 6
23 June
2008
Brussels
A step-by-step process
July 2003: EFAMA joins the EFCF
June 2004: EFCF adopts Version 1 of fixed-income funds classification
June 2005: EFCF becomes an EFAMA Working Group
Summer 2005: EFCF hires « Classification Administrator »
April 2007: Adoption of EFC beta version, covering equity, bond, money market and mixed funds
Fall/Winter 2007: Testing of EFC version by Classification Administrator and EFCF members
Spring 2008: Finalization of the EFC
Slide n° 7
23 June
2008
Brussels
EFCF current membership
Fund ManagersAllianz Global InvestorsBlackRock Investment ManagementBNP Paribas Investment PartnersCredit Suisse Asset ManagementDWSFidelity InternationalFranklin TempletonGoldman SachsHSBC Asset Management LimitedING Investment ManagementInvescoJPMorgan Asset ManagementKBC Asset ManagementMellon Global InvestmentsMorgan Stanley Investment ManagementPioneer InvestmentsRobecoSchrodersUBS Global Asset Management Union Asset Management
Data Vendors BloombergFeri Rating Research AGLipperMorningstar
Trade Associations AssogestioniBVIEFAMA
EFCF Classification AdministratorFundConnect & CCLux
EFCF ChairmanRobert Higginbotham, President – Europe for Fidelity
International
Slide n° 8
23 June
2008
Brussels
EFCF current membership
(1) International funds only include funds that source at least 80% of their assets from more than one market.
Source: Lipper Feri
# International Funds (1) AuM Apr 08
EFCF Members 1,591 503
Other International groups 3,545 610
TOTAL 5,136 1,113
EFCF as % of total 31.0% 45.2%
Slide n° 9
23 June
2008
Brussels
Part II
The European Fund Classification
Part II
The European Fund Classification
Slide n° 10
23 June
2008
Brussels
Three key principles
Transparency: high thresholds define fund categories to ensure transparency for investors and fund management companies and enable like with like comparison of funds
Investor protection: well delimitated fund categories, subjected to robust criteria, and effective monitoring based on the portfolio holding of the funds, will help investors buying funds knowing their inherent qualities
Independence: compliance with the classification criteria will be monitored by a neutral Classification Administrator
Slide n° 11
23 June
2008
Brussels
The benefits
Benefits to investors They will know what they buy when they invest in EFC compliant funds Comparison of funds from different countries will be easier
Benefits to fund providers Sector/peer group classification will be more transparent More consistent marketing of funds on a cross-border basis will be possible
Benefits to data vendors They will get the classification results free-of-charge They will be able to spend less resources on classification issues, more on fund comparison
Slide n° 12
23 June
2008
Brussels
EFC general structure
Four Main Categories
Equity
(85% exposure to shares)
Mixed
(Mix of asset type)
Bond
(90% exposure to fixed income securities)
Money Market
(Weighted average modified duration of less than 1 year)
Slide n° 13
23 June
2008
Brussels
EFC main fund categories’ shares in UCITS market
# Funds AuM March 08
Equity 35.7% 42.2%
Bond 21.9% 19.2%
Mixed 15.6% 21.4%
Money Market 20.2% 5.3%
Total 93.4% 88.1%
Source: EFAMA Quarterly Statistical Release June 2008, N°33
Slide n° 14
23 June
2008
Brussels
EFC classification criteriaDescription
Equity Bond Money Market Mixed
Country / Region X X
Sector X
Market Capitalization X
Currency Exposure X X X
Credit Quality X X
Interest Rate Exposure X X
Emerging Market Exposure X X
Asset Allocation X
Structural Characteristics X X X X
Classification Criteria
Asset Class Level
Slide n° 15
23 June
2008
Brussels
EFC classification criteria Illustration for bond funds
Classification Criteria
Currency exposure
Emerging market exposure
Credit quality
Interest Rate exposure
Structural characteristics
Unconstrained
Slide n° 16
23 June
2008
Brussels
Other fund categories covered
Absolute return
Total return
Convertibles
Open-ended & closed ended real estate funds
REITS
Guaranteed
Capital protected
Lifecycle/Target maturity
ABS
Commodities
Slide n° 17
23 June
2008
Brussels
Part III
First Classification Results
Part III
First Classification Results
Slide n° 18
23 June
2008
Brussels
Main fund categories
Number of Funds Classified
Equity funds
904
Mixed
110
Bond
350
Money Market
72
Slide n° 19
23 June
2008
Brussels
EFC classified equity funds
Equity funds 904
Region/Country Sector Market Capit.
Global 240 United States 98 None 792 Small Cap 50Advanced Europe 153 Japan 53 Real Estate 24Asia Pacific Ex Japan 50 Germany 20 Information Tech. 20Emerging Markets 44 United Kingdom 19 Health Care 15Euro Area 36 Denmark 13 Financials 10Central And Eastern Europe 21 Switzerland 12 Energy 8 StructuralGreater China 17 India 11 Materials 7 Style 34Asia Pacific 15 China 8 Pharma, Bio & Life Sc. 7 Socially Resp. 9Emerging Latin America 15 South Korea 7 Telecommunication 5 Hedged 6Nordic 9 Italy 6 Raw Materials 5 Tracker 2Broad Europe 4 Thailand 5 Consumer Discr. 4 Fund of Funds 1Europe Ex-UK 3 Australia 4 Consumer Staples 3North America 3 Singapore 4 Industrials 2Emerging Asia Pacific 2 France 4 Utilities 1Middle East & Africa 2 Brazil 3 Capital Goods 1Other 1 Other 22
Equity
Fund Group ISIN Name EFC Classification CodeAllianz DE0008476094 Allianz RCM France A EUR EQ-FR-00-0-0000-00Allianz IE0000597124 Allianz RCM Global Emerging Markets Equity Fund A EUR EQ-EM-00-0-0000-00Allianz LU0101244092 Allianz RCM Global Equity AT USD EQ-GL-00-0-0000-00
Slide n° 20
23 June
2008
Brussels
EFC classified bond funds
Bond funds 350
Bond Type Currency Credit Quality Interest rate. Exp.
Regular Bond 304 Single 235 Aggregate 141 Mixed Duration 217Emerging Market Bond 38 Global 37 Corporate 74 Short Duration 44Unconstrained Bond 8 Dominant 32 Government 54 Long Duration 43
High Yield 33 Dominant/single EM Non-IG 33 StructuralEUR 132 EM IG 5 Inflation Linked 6DKK 57 Mixed H. Yield 2 Socially Resp. 2USD 36 Tracker 2GBP 11CHF 10CAD 5AUD 5JPY 4CZK 2SEK 2NOK 2NZD 1
Bond
Fund Group Name Credit Quality Interest Rate ExposureBNP Paribas Parvest (Euro) Bond Premium Corporate Mixed DurationBNP Paribas Parvest Emerging Markets Bond Non-Investment GradeBNP Paribas Parvest Euro Bond Aggregate Mixed Duration
Slide n° 21
23 June
2008
Brussels
EFC classified money market funds
Money Market Funds 72
Currency Interest rate. exp
Single 68 Regular 39Global 2 Short Term 22Dominant 2 Enhanced 11
Dominant/single Structural
EUR 39USD 18GBP 5CHF 4CAD 1CZK 1SGD 1HKD 1
Money Market
Fund Group ISIN Name Interest Rate ExposureJPM VGG513581022 JF Money Fund-HKD Short TermJPM IE00B0MGVL38 JPM EUR Money Market Fund RegularJPM LU0070211437 JPM Euro Liquid Market Regular
Slide n° 22
23 June
2008
Brussels
EFC classified mixed funds
Mixed funds 110
Region/Country Currency Asset allocation
Global 75 United States 2 Global 41 Balanced 45Advanced Europe 13 Germany 1 Dominant 34 Dynamic 34Euro Area 11 United Kingdom 1 Defensive 29Broad Europe 2 Denmark 1 Flexible 2Asia Pacific Ex Japan 1 Turkey 1Emerging Markets 1 Dominant StructuralAsia Pacific 1 EUR 23 Hedged 16
DKK 6 Fund of Funds 4USD 4TRY 1
Mixed
Fund Group ISIN Name Asset AllocationInvesco HK0000020443 INVESCO ASIA BALANCED FUND BalancedInvesco LU0243957312 INVESCO CONT EU ABSOL RETURN DefensiveInvesco HK0000030699 INVESCO GLOBAL BALANCED FUND Dynamic
Slide n° 23
23 June
2008
Brussels
Part IV
Concluding Remarks
Part IV
Concluding Remarks
Slide n° 24
23 June
2008
Brussels
Converging towards a pan-European fund classification is an ambitious goal …
National associations cannot give orders; they can try to convince their members of the importance of a pan-European standard
Local market characteristics and national regulation may impose limits to convergence
Slide n° 25
23 June
2008
Brussels
… but success is a realistic possibility
Finding a consensus on a pan-European classification was possible within the EFCF
Flexible implementation at national level will facilitate dissemination Not all categories should necessarily be adopted in national versions of the EFC Funds not yet classified by the EFC could be included in local versions of the EFC Cohabitation of the EFC with local classification should be possible, at least initially
The completion of the European Single Market for investment funds heightens the need for a pan-European approach to fund classification
Slide n° 26
23 June
2008
Brussels
For more information about the EFC,
please visit EFAMA website.
Thank you for your attention.
For more information about the EFC,
please visit EFAMA website.
Thank you for your attention.