UK Equity Income sector - yield target changes explained

9th March 2017 - In a welcome move, which will result in more clarity for investors when comparing income-producing UK equity funds, the trade body that represents UK investment managers, the Investment Association (IA), has announced that the yield requirement for the UK Equity Income sector will be reduced.

The move comes after more than 20 funds have been removed from the sector over the past year or two for failing to meet the 110% (of the UK stock market yield) target.

Following extensive consultation with consumers, financial advisers and product providers, the IA's Sectors Committee and the IA Board have decided to lower the sector's yield hurdle to 100% of index yield over a three-year rolling period. Failure to achieve 90% of the index yield in any one-year period will still result in a fund being removed from the sector.

To ensure there is consistency for consumers and advisers across the equity income sectors, funds in the Global Equity Income sector will also now have a yield target of 100% of the MSCI World Indexover a three year rolling period.

Darius McDermott, managing director of Chelsea, commented: “This is a sensible move from the Investment Association. I can understand the need for a yield target for funds aiming to produce an income, but I do not want fund managers investing in high yielding stocks just to stay in a certain sector. I want to know that they can stick to their own investment strategies. It was becoming very hard to compare income-producing equity funds and this decision is a good outcome for investors.”

Published on 09/03/2017