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IA lowers yield hurdle for UK Equity Income sector

Thursday 9 March 2017

The Investment Association (IA) today announces the conclusion of its UK Equity Income sector review.

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 from 110% to 100% of index yield over a three year rolling period.

Although the new three year rolling yield target is now set at 100%, 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 its respective index - the MSCI World Index - over a three year rolling period.

Members are now invited to submit funds that they believe meet the new sector definition and criteria. The new definition will be effective from 3 April 2017.
Galina Dimitrova, Director, Capital Markets, said:

“The primary purpose of the IA sectors is to serve the needs of consumers and their advisers. Any change to how they are classified must be done in their best interests.

“The decision to lower the yield hurdle has come after comprehensive consumer research and industry consultation. The change is designed to ensure that consumers and advisers have better visibility of the choice of equity income products that exceed their respective market yields.

“As ever, we will continue to monitor the fund market to ensure that all of the IA sectors reflect the wide range of products the asset management industry has to offer savers around the world.”

- ENDS -

For further information, please contact:

Alex Hogan
Communications Manager
Alex.Hogan@theia.org
T 020 7269 4620
M 07508 724 066

Notes to editors:

The UK Equity Income review asked the industry, consumers and their advisers to decide between three options:

  • Option 1 - No change to the sector definition.
  • Option 2 - replace the current 110% hurdle with a requirement to generate a yield higher than the FTSE All Share over 3 year rolling periods. Retain the 90% yield requirement over 1 year. Demonstrate that an above market average income is an objective of the fund in product or client documents. Other sector criteria unchanged.
  • Option 3 - require specific disclosure in relation to income (e.g. net yield, absolute net income generated over 5 years for £100 investment, income growth, total returns, volatility, whether the fund is structured to optimise dividend distribution (i.e. charge fees to capital and not income)). Accordingly, the yield hurdles in the current definition would be removed.

About the Investment Association:

  • The Investment Association is the trade body that represents UK investment managers who manage over £5.7 trillion on behalf of clients
  • Our purpose is to ensure investment managers are in the best possible position to:
    • Build people’s resilience to financial adversity
    • Help people achieve their financial aspirations
    • Enable people to maintain a decent standard of living as they grow older
    • Contribute to economic growth through the efficient allocation of capital
  • The money our members manage is in a wide variety of investment vehicles including authorised investment funds, pension funds and stocks and shares ISAs.
  • The UK is the second largest investment management centre in the world, after the US and manages 37% of all assets managed in Europe.