IA reinstates yield tests for equity income sectors

IA reinstates yield tests for equity income sectors

The Investment Association has reinstated yield tests for the UK and global equity income sectors.

The tests, which were suspended in April last year due to the pandemic, will be enforced from September 24 this year.

The IA said yield tests were suspended last year to ensure fund managers “were able to focus on long-term outcomes for savers”, instead of making immediate changes in order to meet sector requirements.

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The statement released today (June 30) said in light of “calmer market conditions” and the continued easing of the pandemic, the IA’s sectors committee agreed to reinstate the tests for the one and three year yield thresholds.

The IA’s sector definitions aim to ensure that funds within the equity income sectors focus on delivering income.

They are required to meet a yield hurdle over one and three years in order to remain in the sectors.

Jonathan Lipkin, director of policy, strategy and research at the IA, said: “The measures introduced last year helped prevent unnecessary disruption to the equity income sectors. 

“As the pandemic eases, and markets have settled, it is right to re-establish the yield test so savers can be assured that the funds in the equity income sectors are meeting the income thresholds set out in the sector definitions.”

To account for the impact of dividend suspensions caused by the pandemic, the IA is changing the three-year rolling average test.

Each fund will have the opportunity to roll off one fund accounting year from the three-year test, either the fund accounting year ending in 2020 or 2021. Funds will only have one opportunity to choose whether to roll off a year.

The one year test will remain unchanged.