Legg Mason is to drop the income requirements for one of its Martin Currie funds by abandoning a promise to yield more than its index, as fund houses continue moving away from fixed targets citing difficulties in finding income in current markets.
The asset manager plans to overhaul the investment objective for its £109m Legg Mason IF Martin Currie Global Equity Income offering, managed by Alan Porter and Mark Whitehead.
This is the second Legg Mason fund to see a potential target drop after the £42m Brandywine Global Income Optimiser dropped its 8 per cent target earlier this year.
The proposed change, which goes to a vote on October 26, would see the fund “target income and the potential for capital growth over the long term” instead of its current aim of “an annual yield in excess of the MSCI World index with the potential for capital appreciation”.
In a note to investors, Legg Mason said: “It is intended that the fund will continue to seek to produce a high yield premium to the wider equity markets, meaning that the change in objective will not lead to any material changes to the construction of the fund’s portfolio or cause the yield to materially change.
“The emphasis on providing a high income (relative to the wider market) over the long term should help to preserve the purchasing power of a shareholder’s investment - although the fund will not seek to, and will not guarantee, that the fund’s return will beat inflation.”
The fund will also put changes to its investment policy to unit holder vote. This included allowing the use of derivatives, particularly call and put options, for investment purposes rather than just for efficient portfolio management.
One further proposed change would be a statement that the fund “may, from time to time, hedge certain currency exposures with the aim of reducing risk”.
The proposal, which would come into force on November 2 if approved, comes at a time of difficulty for buyers of income funds, after a number of the vehicles proposed to either scrap or amend payout targets in August.
The board of the £326m BlackRock Income Strategies trust is considering replacing BlackRock following an announcement that it would review the trust's investment objective, citing a lack of viable income investment opportunities.
