Carl Stick’s Rathbone Income fund is to be removed from the UK Equity Income sector despite the Investment Association having consulted members this week on an overhaul of its rules.
The £1.2bn fund will move to the UK All Companies sector on 1 May after failing to meet the trade body’s requirement that funds yield 10 per cent more than the FTSE All-Share over a rolling three-year period.
As revealed by Investment Adviser yesterday (April 18), the IA has launched a consultation proposing alternative ways of classifying UK equity income funds.
The IA said in the consultation that it would continue to enforce the existing rules during the four-week feedback period.
Responding to the removal of Mr Stick’s fund, Rathbone Unit Trust Management chief executive Mike Webb said he backed an overhaul of the sector.
“We understand the IA has to adhere to rules that are currently in place. But we welcome the move to consult to change the rules.”
Mr Webb added the current yield requirement “makes no sense”, claiming it penalises dividend growth and could force funds to buy up high-yielding stocks.
The consultation has presented members with three options: no change; replace the 110 per cent hurdle with a requirement to yield more than the All-Share over three years; or scrap yield rules in favour of specific disclosure relating to income generation.
The chief executive said Rathbones was still discussing its response to the consultation, but hinted he would prefer the IA’s third option.
“That has the right ring to it,” he said.
Mr Webb confirmed the company would seek to return the fund to its existing sector if possible.
In a letter to investors, Mr Stick said: “A principal aim of the Rathbone Income Fund, is to provide a real increase in distribution year on year...we have every intention to be as helpful and constructive as we can in our contributions to the IA’s consultation process. However, we will not change the fund’s process or focus.”
Rathbone Income has returned 30.8 per cent over the past three years, compared with the UK Equity Income sector’s average return of 25.6 per cent, according to FE Analytics.
