Montanaro latest to be booted from IA equity income sector


Montanaro Asset Management is to become the latest fund manager removed from the IA Equity Income sector.

The company found out several days ago its UK income fund would not be included in the sector from the end of the month, as it did not achieve the “arbitrary” target of 110 per cent of the FTSE All Share yield.

Head of business development Tom Norman-Butler says by the company’s own calculations it was the top performing fund in the sector last year with total returns of 20 per cent.

However, its yield of 3.7 per cent means it misses the IA classification by 0.1 per cent.

The fund adds to a growing list, with Evenlode announcing on Tuesday its £400m income fund would be banished to the UK All Companies sector on 1 June.

Last month the Investment Association announced it was running a consultation on its classification of the UK equity income sector after a number of major funds were removed.

Mark Barnett of Invesco Perpetual and Kevin Murphy and Nick Kirrage of Schroders had previously been banished to the UK All Companies sector, while the Rathbones Income Fund was removed shortly after the consultation launched.

Norman-Butler criticises the IA process of calculating yield from the year-end NAV.

“This penalises successful funds. Bizarrely, had we produced lower returns for our clients – or even lost them money – we would have been rewarded by keeping our place in the sector,” Norman-Butler says. 

He also warned that with only a quarter of the FTSE All Share delivering higher yield than the market average, fund managers would have to enter the “troubled oil and gas, commodity and banking sectors” to remain in the sector.

This week, Evenlode fund manager Hugh Yarrow described the Investment Association equity income sector as the Evenlode Income fund’s “natural home”.

“The move is purely driven by the fund narrowly failing a somewhat arbitrary sector classification definition,” Yarrow says.