Funds face expulsion from UK Equity Income sector

The Investment Management Association (IMA) will push funds out of the UK Equity Income sector if they fail to meet the yield target. Funds that fail to do so will be placed into a new sector, UK Equity Income and Growth, when it is created in January.

Last December the IMA’s performance category and review committee (PCRC) decided to carry out a 12-month review of the funds in the UK Equity Income sector. This followed calls from the industry that managers were chasing performance tables rather than meeting the 110% FTSE All-Share yield target.

As a result, the sector will be created next year for funds that aim to have a historical yield of 90-110% of the FTSE All-Share, as well as producing growth. Both sectors are required to have 80% invested in British equities.

The IMA says it will “remove from the UK Equity Income sector all funds within the sector that fail the yield test based on 12 months’ look-back on December 31, 2008”. The association also says it indicated it may adjust the yield parameter tests for both sectors should market conditions require the body to do so.

Although the sector changes will take immediate effect from January 1, 2009, information and tables will not appear amended until the end of February to allow for the time-lag during which funds are checked for compliance.