Kames UK Equity Income co-managers Douglas Scott and Iain Wells have branded the recent changes to the Equity Income sector ‘the IA Hokey Cokey’, saying the new measures are unnecessary and could confuse investors.
The Investment Association announced in March that it was lowering the sector’s yield requirement from 110% to 100% of that of the index over a rolling three year period, while also threatened to eject any fund that fails to achieve 90% of that figure.
However, the Kames duo pointed out the lower requirement has enabled previously ejected funds to return to the peer group, which they believes renders it irrelevant.
They have questioned the tangible difference between a UK equity income fund and a standard UK equity mandate under this definition, given they can yield exactly the same.
Scott (pictured) said: ‘This move is good news for some in the IA Hokey Cokey UK Equity Income fund sector. Some that were ‘out’ can now be ‘in’, which basically implies if you’re big and don’t like the game, ask for the rules to be changed!’
Wells added: ‘'A UK equity income fund should offer a premium yield relative to the market, otherwise is it not just a UK equity fund? It makes no sense to lower the hurdle to being classed as an income fund, and means that such a fund now only needs to yield as much as the market, which is a confusing message to send the wider public.
‘The skew in the All Share index, and the challenge it creates for income fund managers is well known. But as demonstrated by the Kames UK Equity Income fund, it is possible to offer performance and a premium income. Lowering the hurdle to the 100% level arguably has more to do with accommodating bigger groups that have been unable to meet the previous 110% requirement.
‘Lowering the grade, whether in classification of funds, or in other areas like exams, is a backward move in the long run.’
Investor appetite for yield was underlined last week when Wealth Manager revealed that the Woodford Income Focus fund had pulled in £553 million at launch, while his flagship Income fund hit the £10 billion landmark in March.