The Henley-based fund giant said its £13.5bn High Income fund was set to move out of IMA UK Equity Income into the UK All Companies sector of growth-focused funds today, while its £8.6bn Income fund and £412m UK Strategic Income fund will make a similar move later this year.
The news comes on top of another recent blow for the UK’s leading equity income franchise seen last October when Neil Woodford, arguably the UK’s most famous investor, resigned from the group, triggering heavy investor outflows.
Advisers warned the funds could be “lost” in the UK All Companies sector, which includes roughly 262 funds compared with the 95 in UK Equity Income, although they said the move “had been hinted at for a while”.
Brian Dennehy, managing director at Dennehy Weller & Co, said: “These funds have always had a slightly confused position in the equity income sector, as they are fundamentally total return funds.
“The IMA makes the situation more confused with the precise way it calculates whether a fund fits within this sector or not. What people need from funds in this sector is longer term, consistent, payout growth – yet this isn’t a criteria for inclusion.”
Patrick Connolly, head of communications at Chase de Vere, said: “It’s a bad move for them to have to make.
“You can make the argument that you get more flexibility [in the IMA UK All Companies sector] but there are a huge amount of people looking for income, and Invesco risks moving off people’s radars.
“The funds will get lost in the UK All Companies sector. In the IMA UK Equity Income sector they are big fish in a relatively small pond.”
The UK Equity Income sector requires that member funds deliver yield of at least 110 per cent of the level seen on the FTSE All-Share index of UK equities in a three-year period. That means funds that deliver high capital growth can become victims of their own success as this causes yield to fall.
Invesco said the funds had always targeted income and capital growth.
Figures from the group showed all three UK equity income funds had delivered far greater amounts of income in pounds and pence terms compared to the sector. However, the capital growth of the fund has led to a yield fall.
“These changes are due to the constraints around the three-year yield requirement used as a qualifier for the IMA Equity Income sector,” the group said.
The IMA said High Income “meets the criteria for the IMA UK All Companies sector and no longer meets the criteria for the IMA UK Equity Income sector”.
However, Alistair Cunningham, chartered financial planner at Wingate Financial Planning, said the High Income fund was one he liked and its sector location “doesn’t worry me”.
“It’s certainly not a positive [to be forced to move sectors] though and arguably it could put some people off,” he said.
Cause for concern?
Advisers have raised concerns in the wake of the Invesco move. Some, such as Rowley Turton’s Scott Gallacher said it was “terrible timing” amid Neil Woodford’s departure, while Aurora Financial Planning’s Aj Somal said advisers might look to funds that meet the IMA’s yield requirements. But Invesco’s head of UK retail Ian Trevers said clients were “best served” by the funds maintaining their investment style.
