The lead manager of the £524m Evenlode Income fund has criticised the Investment Association’s (IA) UK Equity Income sector after the portfolio was caught out by its yield requirements.
Hugh Yarrow, who runs the fund with Ben Peters, said the vehicle would move to the UK All Companies sector on June 1 after the fund failed to produce an income 10 per cent higher than that of the FTSE All-Share over a rolling three-year period.
In response, Mr Yarrow criticised the sector’s “arbitrary” parameters, however, and added the move would not affect the managers’ approach.
Evenlode will become the 19th fund to exit the sector for these reasons since 2013. Last month Investment Adviser revealed that the IA was consulting members on a possible overhaul of the sector’s requirements.
Members have been presented 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 third option could involve disclosing net yield, income growth, total returns, volatility and a figure showing absolute net income over five years based on £100 invested, according to the consultation document.
Mr Yarrow said the third option would be preferable.
“The IA’s suggestion of disclosing the amount of income generated over five years from a £100 investment is a good one, and we will add this disclosure to our factsheet from next month,” he said.
“From a long-term income investor’s view, this is an important measure, and neatly wraps up both initial yield and dividend growth into one simple number.”