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20 July 2015

Schroder Income removed from the IA UK Equity Income sector


The Elite Rated Schroder Income fund has been moved into the UK All Companies sector after failing to meet the Investment Association yield requirements of the UK Equity Income sector. Invesco Perpetual's High Income and Income funds suffered a similar fate last year.

The Investment Association rules currently require funds to produce a yield equivalent to 110% of that of the FTSE All-Share index over a rolling three-year period. However, a number of fund houses have taken issue with this calculation in the past, arguing it prioritises absolute yield over the potential for dividend growth.

Schroder's Robin Stoakley responded by saying: “We are disappointed with the Investment Association's decision to remove the Schroder Income fund from the IA UK Equity Income sector.

"We believe that the methodology used by the IA to calculate the yield requirement is outdated and that investors are seeing a sector that is not a true representation of UK equity income funds.

"We are concerned with the direction that the sector is taking and believe the IA needs to rethink its calculations."

The current FTSE All-Share yield of just over 3.4% is skewed by around 30 large-cap companies which yield in excess of 5%. Schroder's have suggested that the Investment Association changes the basis of its calculations to a median market yield, which is currently 2.24%.

A statement from the Investment Association said: "We are always open to discussions on how to improve the fund sectors. The current methodology has been agreed by the sectors committee, which comprises members and data providers.

"Schroders' ideas have merit and will be considered by the sector committee as the Investment Association continues dialogue with sector users and members to ensure that sector definitions remain fit for purpose as the external environment changes."

FundCalibre's Clive Hale added: “Schroder Income is an excellent fund, which is still producing a yield in excess of 3.5%. This is a deep value driven fund, investing in companies valued at less than their true worth and waiting for a correction. It has little correlation with other income funds, tending to avoid the big income producers in favour of more niche names, where both capital as well as income can grow significantly. We still regard it as a UK Equity Income fund and will continue to rate it as such.”

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