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Woodford is among income yield exodus

Invesco Perpetual star fund manager Neil Woodford is set to lead an exodus from the UK equity income sector following the IMA’s latest announcement on yield requirements.

This week, moneymarketing. co.uk revealed the IMA intends to launch a new UK income and growth sector on January 1, 2009 to accommodate funds struggling to meet its UK equity income yield requirement of 110 per cent of the FTSE All-Share.

Research from the IMA found numerous funds were not, and unlikely to be, in compliance with the new requirements by the deadline of December 31 this year.

Invesco says Woodford will not amend the investment horizons of his £5.4bn income and £7.6bn higher-income funds, which have always been between five and 10 years. The fund firm claims the IMA decision forces managers to focus on short-term yield at the expense of the long-term balance between income generation and capital growth.

The IMA plans to remove all UK equity income funds that fail the yield test on a review of the past 12 months from December 31. Those that fail will be moved into the new UK equity income and growth sector, provided they meet the sector’s own definition, which is that funds aim to produce a historic yield of 90 to 110 per cent of the FTSE All-Share yield at the fund’s year-end.

Others believed to fail the yield test at present include Anthony Nutt’s £2.6bn Jupiter income fund. Artemis and Standard Life have both confirmed their funds will remain in the sector.

Liontrust chief executive Nigel Legge says: “It was vital that the IMA brought greater clarity here. Such action enables advisers and their clients to compare apples against apples rather than apples against pears.”

Chelsea Financial Services managing director Darius McDermott says: “We will continue to invest with Woodford regardless of the sector he is in.”

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