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The ‘decisive’ moment

All I can say is it was lucky the headmaster stepped in, otherwise there could have been blood all over the playground. In terms of gang warfare, it’s not exactly up there with the Bloods and the Crips or even the Jets and the Sharks but, still, there was real scope for some badly grazed knees if the IMA hadn’t acted so decisively.

I say “decisively” but that may not be quite the right word – if I may, I’ll have a bit of a think and get back to you on that. In the meantime, just in case you’ve been hiding in a cave in Wales, having gone early in a bid to dodge the apocalypse, let me fill you in on the most important issue to beset Her Majesty’s financial services industry in years.

No, I’m not talking about the credit crunch or the failing economy or anything else as mundane as that. This is the altogether more serious question of when an equity income fund is – and isn’t – an equity income fund. Yup, this is what for some time has been concerning some of the country’s leading equity income managers – or possibly just their marketing departments.

On the face of it, the argument is quite grown-up and boils down to dividends not being what they used to be. With many of the UK’s big payers – most significantly the banks – cutting back on their divvies, it has become harder and harder for fund managers to meet the IMA’s UK equity income sector yield target of 110 per cent of the FTSE All-Share.

Mind you, this has exercised some equity income managers rather more than others, with the Yield Steady Crew left to stamp their feet as the Total Return Posse – hey, I told you this wasn’t West Side Story – treated the yield target as more of a, let’s say, guideline.

Put it this way, I’m guessing nobody in Henley has lost much sleep over their investment strategy this century.

So the Yield Steady Crew weren’t happy – possibly because fair play is one of the things that have made this country great or perhaps because, in recent years, concentrating on yield hasn’t exactly pushed funds to the top of the charts.

No, that’s unfair – I’m sure their attitude would have been exactly the same had they been consistently first-quartile.

Still, does chopping up the equity income sector really make sense? Shouldn’t equity income funds look to grow both capital and income because in the end, if you don’t grow the capital, you won’t grow the income and things become self-defeating?

Presumably, nobody wants every equity income manager doing the same thing. Ideally, one might look to own a member of each of the Yield Steady Crew and the Total Return Posse in the same portfolio. Or, as it was once put to me, it’s like an Olympic boxer taking on a kickboxer, who by definition has a few extra moves at his disposal.

Overall, the Yield Steady Crew should do OK but every now and then they’re going to get a kick below the belt.

Frankly, advisers should be big enough and clever enough to tell their boxers apart but evidently the IMA does not agree. It has stepped in to solve the problem – albeit a problem that, with dividends and hence the historic yield on the All-Share heading south, may well have corrected itself naturally – and we now have the equity income and growth sector.

Now why does that ring a bell? When, in June 1999, the IMA’s predecessor Autif merged the UK growth and, er, UK growth & income sectors into the UK all companies grouping – now there’s something crying out for a little slimming down – it did so arguing there was currently no significant difference between the two.

“The primary aim of this fund classification system is to be customer-focused,” said a spokesman at the time – although it’s nice of the IMA to widen that focus to the fund management playground. “We took the view the simpler the framework, the better,” the spokesman added.

Julian Marr is editorial director of


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