Referring to the IA’s consultation on the UK Equity Income sector’s definition, the wealth manager collective wants any new classification to be “transparent, fair and achievable” and provide investors’ confidence about the sustainability of income that funds can provide.
The IA has drawn up three options. The first is no change to the sector definition, and while this may appear unfeasible, the APFI believes any change should not be punitive to managers who have persevered to provide investors a level of yield.
It warns the industry should avoid the “bad old days” of capital stripping last seen among distribution funds.
The second option is to replace the current 110% hurdle with a requirement to generate a yield higher than the FTSE All Share over three-year rolling periods.
The APFI says this appears to be a fairer option but it points out that, as equity income managers are direct investors in yielding stocks and companies attract fund managers primarily through the dividend, then a floating index target presents a conflict of interest which would need to be addressed.
The third option is to require specific disclosures in relation to income such as net yield, absolute net income generated over five years for £100 investment, income growth, total returns or volatility.
This would be the most difficult to achieve but ultimately the most transparent of the three options presented.