Yield target reduced for UK Equity Income funds

The UK investment management trade body, the Investment Association (IA) has today announced that the yield target on the UK Equity Income sector will be reduced from 3rd April 2017.

The announcement comes following the removal of more than 20 funds from the sector over the past 18 months or so for failing to meet the yield target of 110% of the UK index yield.

As we reported back in May last year, a large number of funds had fallen foul of this rule, including Evenlode Income, Rathbone Income and Schroder Income.

A review of the sector was long overview and FundCalibre’s directors felt that managers shouldn’t be forced to buy higher yielding stocks simply to meet a rule – they needed to be able to stay true to their own investment processes.

However, with income-producing equity funds in different sectors, it was becoming very hard for investors to compare funds like for like.

The IA has now 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.

So that sector definitions are consistent, the Global Equity Income sector will also now have a yield target of 100% of the MSCI World Index over a three-year rolling period.

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The views of the author and any people interviewed are their own and do not constitute financial advice.