The Investment Association is to canvas opinions of end investors and advisers in its review of the UK Equity Income sector, after opinions of asset managers were split.
The trade body says it will enlist YouGov to survey investors and advisers about whether it should change the criteria for the UK Equity Income sector.
It has already questioned members on the review, but with no clear outcome. There was a near 50-50 split between remaining with the current criteria and changing the rules.
A fund currently qualifies for the Investment Association sector by maintaining an average yield of 110 per cent of the FTSE All Share over a three-year period.
The three options laid out by the Investment Association are no change to the sector definition; making it so funds only have to match the FTSE All Share’s yield and requiring more statistics about their income and performance.
Galina Dimitrova, director of capital markets at the trade body, says: “Following extensive consultation with our membership, we felt that it was essential to engage with consumers before making any decision about the future of the sector.
“Alongside the consumer research, we encourage all users of the sectors to share their views with the Investment Association in the coming weeks.”
The Investment Association will run the consumer research until September, before making a decision on the sector review before the end of the year.
Option 1 – No change to the sector definition
Option 2 – Replace the current 110 per cent hurdle with a requirement to generate a yield higher than the FTSE All Share over three-year rolling periods. Retain the 90 per cent yield requirement over one year. Demonstrate that an above market average income is an objective of the fund in product or client documents. Other sector criteria unchanged.
Option 3 – Require specific disclosure in relation to income (e.g. net yield, absolute net income generated over five years for £100 investment, income growth, total returns, volatility, whether the fund is structured to optimise dividend distribution (i.e. charge fees to capital and not income)). Accordingly, the yield hurdles in the current definition would be removed.