The Investment Association (IA) is to extend its consultation on the UK Equity Income sector’s disputed yield requirements after member responses failed to produced a consensus.
The fund manager trade body said its April consultation had produced a “near fifty-fifty split” on whether to scrap the existing requirement for funds to yield 10 per cent more than the FTSE All-Share over a rolling three-year period.
The IA will now extend the consultation to consumer groups in order to further clarify what end-investors require from funds grouped together under the equity income banner.
Research will be conducted by YouGov and will include both advisers and consumers, before concluding in September with a view to a final decision by the end of 2016.
Alternatives proposed by the IA include replacing the 110 per cent hurdle with a requirement to simply yield more than the All-Share over three years, or scrapping yield rules in favour of specific disclosure relating to income generation.
The latter option could involve metrics such as disclosing net yield, income growth, total returns, volatility and a figure showing absolute net income over five years based on £100 invested.
The consultation was launched against a backdrop of growing criticism from fund groups who had seen their funds ejected from the sector for failing to meet current requirements.
Many of the managers removed complained the 10 per cent rule penalised funds whose yield dropped because holdings rose sharply in value, and those who prioritise gradual dividend growth over headline yield.
In the interim, the IA has made other changes to its classification system, proposing the creation of a new ‘Volatility Managed’ sector from September as a means of reducing the growing number of funds sitting in its Unclassified grouping.
