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Only one fund fails income yield sector marker

Advisers say the IMA UK equity income and growth sector is pointless after research from Morningstar found that only one fund in the sector is failing to meet the yield requirements for the IMA UK equity income sector.

Figures from Morningstar show that only the Halifax UK equity income fund fails to meet the requirement of 3.43 per cent, which is 110 per cent of the FTSE All-share yield on January 12, 2010.

The average yield in the IMA UK equity income and growth sector stands at 4.85 per cent. The 18 funds in the sector include Neil Woodford’s Invesco Perpetual income and high-income funds, which are yielding 5.13 per cent and 5.35 per cent respectively. The average fund in the IMA
UK equity income sector is yielding 6.31 per cent.

Last year, the IMA launched the new sector to accomm- odate funds struggling to meet the yield requirement of 110 per cent of the FTSE All-share. Neptune income, managed by Robin Geffen, is the other big name in the sector and is yielding 5.38 per cent,
Hargreaves Lansdown investment manager Ben Yearsley says: “I have always said that the sector was pointless and as long as you match the income of the FTSE All-share yield, it should be fine. The funds do have more scope and flexibility in that sector but that is not enough to
justify a new sector. I did not see the point then and I do not see it now.”

Skerritt Consultants head of investments Andrew Merricks says: “The ‘Woodford sector’ is confusing at best and there are still so many questions about why it was launched. Most people want income or growth.”

An Investment Management Association spokeswoman says: “In March 2009, after extensive consultation with members, the IMA confirmed the population of funds in the UK equity income sector and in the new UK equity income and growth sector.

“The consultation acknowledged the composition of market yield was changing fast – this is something the IMA has been monitoring throughout. Furthermore, the IMA announced at the outset that it would review the sectors in January 2010.”

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