Absolute return funds have recently come under fire in the UK due to sub-par performance and difficulty in the ability to compare one fund to another.

In reaction, the Investment Management Association (IMA) has launched a consultation to re-haul the classification of these funds.

But what impact, if at all, will improve labelling actually have on investor choice and ultimately on what these funds actually offer?

As has been outlined on this website before, investors are now more than ever faced with definition overload; more jargon leading to more confusion when it comes to selecting products.

According to the IMA, the consultation on the definition of absolute return aims to “make comparisons easier for consumers” but whether the result will have the desired effect only time will tell.

Fuelled by the low-interest rate environment and constant concerns about market volatility, the association believes investor demand for returns-based or outcome oriented funds is due to grow.

In fact, the absolute return sector was in the top 10 best-selling sectors in April 2012, registering £74m in inflows over the month.

This success was in spite of poor performance; average performance of UK absolute return funds over one year was -1.1% and -1.4% for offshore funds.

Therefore, in light of the sector’s continued traction among retail customers, the IMA feels the definition needs to be amended. This could include separating out the funds that make use of a cash benchmark, categorising the funds according to hedge fund style (global macro, long/short etc) or keeping all the funds within the single sector and adding more information on the website.

Therefore the review will bring about little change, especially for investors. In earnest, any of the outlined changes would be cosmetic – the function of the funds would remain the same as would their performance, or lack thereof.

Those that might emerge as winners as a result of this consultation could be the managers whose products’ stronger performance has been drowned by the lacklustre returns generated by some of their less successful peers, which are currently in the same sector.

And although this could allow investors to better compare fund performance, any changes within the sector would ultimately be cosmetic.