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Funds yield to sector switch

Advisers believe more funds are likely to move across to the newly launched IMA UK equity income and growth sector as the search for yield gets tougher.

Last week, the Investment Management Association unveiled its list of 17 funds in the new sector, including Neil Woodford income and higher income funds and Robin Geffen’s Neptune income fund.

Hargreaves Lansdown investment manager Ben Yearsley says it would make sense for more managers to move across as dividend cuts grow.

He says: “The new sector is so much easier as it has fewer constraints for fund managers at a time when yields will become harder to achieve with dividend cuts set to grow.

“It reinforces the opinion that the sector is a waste of time when they could just change the UK equity income mandate.”

The new sector has funds which invest at least 80 per cent of their assets in UK equities, aim to have a historic yield on the distributable income in excess of 90 per cent of the yield of the FTSE All Share index at the fund’s year-end and which aim to produce a combination of both income and growth.

All 15 funds moving from the UK equity income sector have retained their track records. A further two funds transferred from other sectors.

Invesco believes the IMA’s move forces managers to focus on short-term yield at the expense of the long-term balance between income generation and capital growth.

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