Rathbone Income removed from the IA UK Equity Income sector

Elite Rated Rathbone Income fund has been moved to the UK All Companies sector, after failing to meet the yield requirements of the UK Equity Income sector.

Schroder Income met the same fate last year and, as then, we have decided to maintain the Elite Rating of the fund.

The Investment Association rules currently require funds to produce a yield equivalent to 110% of that of the FTSE AllShare 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.

As a result, the Investment Association has, just this week, paved the way for an overhaul of the sector by launching a consultation on the yield requirements. Over the next four weeks, fund management companies will be asked for their preference of three options:

  1. Not to change the requirements
  2. Reduce the 110% yield requirement to 100%
  3. Scrap yield rules in favour of specific disclosure relating to income generation

FundCalibre’s Darius McDermott commented: “I think the review is very important, otherwise there will be more income funds being ejected from the sector.

“Having a target is one thing, but I’m of the belief that managers shouldn’t be forced to buy certain companies or sectors just to achieve a certain level of yield. For some clients a high yield is important, for others, a stable and growing yield is more important. So transparency is key.

“Rathbone Income is a very good fund and the dividend has been cut in just one of past 23 years. That is an incredible record. We still regard it as a UK Equity Income fund and will continue to rate it as such.”

The views of the author and any people interviewed are their own and do not constitute financial advice. However the knowledge that professional analysts have analysed a fund or trust in depth before assigning them a rating can be a valuable additional filter for anyone looking to make their own decisions. Before you make any investment decision make sure you’re comfortable and fully understand the risks. If you invest in fund or trust make sure you know what specific risks they’re exposed to. Past performance is not a reliable guide to future returns. Remember all investments can fall in value as well as rise, so you could make a loss.