AJ Bell has criticised the Investment Association (IA) for including ETFs in a recent consultation into sectors.

The IA has asked for responses to the consultation by 1 February and listed potential outcomes as “no change to the status quo”, “inclusion of ETFs in existing sectors”, “creation of separate ETF sectors” or “ability to filter data for inclusion/exclusion of ETFs.”

Commenting on the consultation Ryan Hughes, head of active portfolios at AJ Bell, said: “ETFs are an investment structure, they are not a way of investing and therefore if you’re adding ETFs why are you not adding investment trusts?

“If what you’re doing is saying let’s have one sector for all funds, then it should include ETFs, funds and investment trusts, and surely that’s what they are saying here.

“If the IA are doing this for the sake of adding a load of passive funds to sectors then that just adds more confusion for investors.

“The inclusion of passive funds will mean that where you have got lots of passive funds in a sector they will occupy the bottom of the second quartile and the top of the third quartile, and active funds will sit above and below that – and that feels like a move that will create confusion for investors.”

But Hector McNeil, co-CEO of HANetf, backed the idea.

He said: “We think this consultation from the IA shows a great deal of foresight and we welcome the move.

“The fact is most investors have a variety of both active and passive strategies in their portfolios, including ETFs, and by including them in comparison tables it will enable investors to gain a better understanding of how their portfolios are performing.
 
“Improving transparency in this way can surely only be a good thing for end investors, and we hope the scope of ETFs included can also be widened over time.
 
“The next generation of ETFs, such as thematic, smart beta and eventually active products, will sit very well in this initiative.

“These new ETFs will be much more focused on after fee performance rather than just being judged on how low the fees are, so to have them alongside active funds makes a lot of sense.”