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Funds fail to meet IMA’s yield target

Over a third of UK equity income funds are not yet achieving the Investment Management Association’s new yield requirement with less than six months to go before the deadline.

Of 92 funds in the sector, 37 are failing to produce a yield that would meet the new definition due to start at the end of 2008. Funds must invest at least 80 per cent in UK equities and aim to achieve a yield on the distributable income in excess of 110 per cent of the FTSE All Share yield.

Big-name managers yet to achieve that yield include Invesco Perpetual’s Neil Woodford and Jupiter’s Tony Nutt.

Some funds are more than a percentage point away from achieving the average yield, according to Lipper figures.

The FTSE All Share yield was 4.26 per cent at July 7, so a fund would need to yield 4.68 per cent to qualify.

An IMA spokesperson says: “Those who were breaching the requirement as at January 2008 were notified in March and April and have been given until January 2009 to comply with the definition. Funds that fail to meet the parameters after the one-year period will be removed from the sector.”

Hargreaves Lansdown investment manager Ben Yearsley says: “I would prefer managers to focus on the best opportunities rather than chasing income. The longer they fail to make the yield criteria, the more you have to question if they are in the right sector. It is not an immediate concern but some yields are worryingly low.”

Newton higher-income manager Tineke Frikkee says: “I would be surprised if everyone stayed in the sector once the 12 months are up. It will change the landscape as performance chasing is counteracted.”

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