Typically cheaper to own than traditional funds, exchange-traded funds (ETFs) have become a core part of portfolio construction and their popularity with investors continues to rise.

And in a significant move that recognises how these passive vehicles are fast becoming the product of choice, the Investment Association (IA) has given the green light for ETFs to join its fund sectors.

Investors will soon be able to compare open-ended active and passive funds with exchange traded funds (ETFs) for the first time on a sector basis. Over 200 ETFs are eligible to apply for inclusion – although they have to be ‘physical replication’ ETFs and UK-domiciled (EU UCITs with HMRC reporting status) - and the successful ETFs will be added to the 3,500 funds already housed in the IA’s 37 fund sectors from the first quarter of 2020.

The ETFs will be placed within the existing IA sectors, which allow investors to compare open-ended funds by dividing them into groups based on geographical region, asset class and investment strategy.

Galina Dimitrova, the IA’s director of investment and capital markets, says: ‘We want to ensure that the IA sectors reflect the full range of products the asset management industry has to offer savers around the world. ETFs are a growing part of this market and their inclusion in the sectors will enable consumers to compare across a wider variety of products.’

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