The Investment Association has scrapped the yield requirements for funds within its UK and Global Equity Income sectors in a bid to maintain continuity for investors during the coronavirus crisis.
The trade body for UK investment managers announced today (April 22) it would suspend the requirements — which see funds that do not achieve a certain yield on distributable income dumped from the sector — for 12 months.
In normal circumstances, the IA demands equity income funds achieve a historic yield on the distributable income in excess of 100 per cent of the FTSE All Share yield at the fund's year end on a three-year rolling basis, and 90 per cent on an annual basis.
But many companies held in such funds have reviewed their dividends in light of the crisis, with many suspending or postponing payments.
Jonathan Lipkin, director of policy, strategy and research at the IA, said: “The IA’s sectors play a valuable role in helping savers navigate the fund market and make meaningful like-for-like comparisons.
“The measures we’ve introduced today will continue to provide savers with transparency on fund performance, while helping prevent short-term disruption to the equity income sectors, which are particularly affected by the economic consequences of Covid-19.”
Earlier this month a number of insurers culled their dividends — including Aviva and Direct Line — just a week after major banks such as HSBC and Lloyds cancelled their payments for the rest of the year.
UK blue chips such as Taylor Wimpey and ITV have both done the same. According to analysis from AJ Bell, income investors are more than £19bn worse off since the start of this year.
The IA’s new guidelines are designed to prevent any short-term disruption to these sectors, so that savers can continue to easily identify and compare equity income funds.
They will also enable fund managers to focus on long-term outcomes for savers, instead of potentially needing to make immediate changes to meet sector requirements, the IA said.
Adrian Lowcock, head of personal investing at Willis Owen, said this was a "sensible" move by the IA.
He added: "With so many companies unable to trade because of the lockdown, and many not even reporting results - let alone dividends - scrapping this requirement will at least remove an unnecessary hurdle for fund managers.
“It will take the pressure off fund managers to try and maintain dividends in what are extreme conditions, help protect investors as fund managers will not have to chase income by clustering into a minute number of companies who are still able to pay dividends, or take extra risk in chasing yields."
imogen.tew@ft.com
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