Schroders has called on the Investment Association to overhaul its yield requirements after Nick Kirrage and Kevin’s Murphy’s Income fund was removed from the UK Equity Income sector.
The top performing fund has become the latest casualty of the investment body’s requirement of a yield equivalent to 110 per cent of the FTSE All Share in a rolling three year period.
Robin Stoakley, Schroders’ managing director of UK intermediary, called this approach to equity income funds “outdated” and has pushed for the body to revamp its methodology.
“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“We believe that the methodology used by the IA to calculate the yield requirement is outdated and that end consumers are seeing a sector that is not a true representation of UK equity income funds,” he said.
“We are concerned with the direction that the sector is taking and believe the IA needs to rethink its calculations.”
Firms have objected to the trade body’s requirements on a number of lines, such as that the requirement encourages managers to hold high-yielding stocks rather than stocks which have the potential to grow their payouts, which could deliver more income for investors in the long-run.
Managers also object to the distortion of the FTSE All-Share’s yield by the largest companies in the index, such as tobacco stocks, HSBC and oil majors, which give a much higher yield than their smaller counterparts and distort the sector’s average.
Schroder Income has joined a host of other high-profile funds which have moved to the UK All Companies sector after failing to meet the IA yield requirement.
In recent years, all of Invesco Perpetual’s income funds, including those formerly run by Neil Woodford, have been removed from the Equity Income sector for the same reason, as have the Henderson UK Equity Income fund and the JPM UK Strategic Equity Income fund.
In a statement, the Investment Association said: “The Investment Association is 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.”
