The Investment Association (IA) has concluded the review of its Smaller Companies sectors.  The review looked across the UK, European, North American and Japanese Smaller Companies sectors. As part of the review, the threshold used to define a smaller company was examined to ensure that the sector definitions align with current market practice.

Following the review, and in consultation with IA members and the Sectors Committee, the IA is changing the definitions of the UK Smaller Companies sector and the European Smaller Companies sector. The changes to the sector definitions will come into force from 31 August 2024:

• The UK Smaller Companies sector definition will change to require funds to hold at least 80% of assets in the smallest 15% of UK company shares by market capitalisation.  This is a change from the smallest 10% by market capitalisation.
• The European Smaller Companies sector will move to require funds to invest in European equities from the smallest 30% of the European market’s capitalisation, changing from the previous smallest 20% market capitalisation cut-off.
• The Japanese Smaller Companies sector, which had fallen below ten funds, closed on 30 September 2023. Funds in this sector have been reclassified to the Japan sector.
• A review of the North American Smaller Companies sector found that no change to the sector definition is necessary.

Miranda Seath, Director, Market Insight & Fund Sectors at the Investment Association, said:  

“We continually assess our fund sectors to ensure that they are aligned with evolving approaches to investing. It is important to acknowledge that market practice has changed since the IA’s Smaller Companies sectors were originally created in 2003. The new definitions better reflect the way that fund managers define ‘smaller’ companies, assisting investors and their advisers in finding like-for-like funds when taking investment decisions.”

Source: IA