IA reinstates yield monitoring tests and enforcement

Following a suspension of the yield tests for the UK Equity Income and Global Equity Income sectors, the Investment Association (IA) has today issued new guidance confirming that the parameters will now be reinstated and enforced from 24 September this year.

The yield tests were suspended in April 2020 owing to the economic disruption caused by Covid-19 in order to ensure that fund managers were able to focus on long-term outcomes for savers, instead of potentially making immediate changes to meet sector requirements. In light of calmer market conditions and the continued easing of the pandemic, the IA’s Sectors Committee has now agreed that the enforcement of the one and three year yield threshold tests should be re-instated.

The IA’s UK Equity Income and Global Equity Income sectors are comprised of 90 and 58 funds respectively, and aim to provide investors with a regular income based on the dividend payments from the companies the fund is invested in.

Jonathan Lipkin, Director of Policy, Strategy and Research at the Investment Association said:

“The measures introduced last year helped prevent unnecessary disruption to the equity income sectors. As the pandemic eases, and markets have settled, it is right to re-establish the yield test so savers can be assured that the funds in the equity income sectors are meeting the income thresholds set out in the sector definitions.”

To account for the impact of the dividend suspensions and postponements caused by the COVID-19 disruption, the IA is making a modification to the three-year rolling average test:

  • Every fund will have the opportunity to roll off one fund accounting year from the three-year average yield test.
  • Each fund may only roll off one year affected by the pandemic: either a fund accounting year ending in 2020 or 2021.
  • The fund has only one opportunity to choose to roll off a year. This opportunity will arise when the fund next submits yield data to the IA, beginning with funds that have a year end in September 2021.

The one year test remains unchanged.

The IA sector definitions are intended to ensure that funds within the equity income sectors - UK Equity Income (UKEI) and Global Equity Income (GEI) - have a specific focus on delivering income, whilst not being unduly inflexible or prescriptive.

The funds are required to meet a yield hurdle over 1 and 3 years in order to remain in the equity income sectors in recognition of the importance of the income objective to investors. The IA publishes these yield figures for all funds within the equity income sectors on its website so retail savers, advisers and users of the sectors have access to up-to-date information about fund performance. From September 2021, the excluded year nominated by firms will be highlighted.


Notes to Editors:

The IA’s fund sectors enable savers and their advisers to easily compare open-ended funds by dividing them into groups of similar funds based on factors such as asset class, investment strategy and geographical region.

UK Equity Income sector includes funds which invest at least 80% in UK equities, and which intend to achieve a historic yield on the distributable income in excess of 100% of the FTSE All Share yield at the fund's year end on a 3 year rolling basis, and 90% on an annual basis.

Global Equity Income sector includes funds which invest at least 80% of their assets globally in equities. Funds must be diversified by geographic region and intend to achieve a historic yield on the distributable income in excess of 100% of the MSCI World Index yield at the fund’s year end on a 3 year rolling basis, and 90% on an annual basis.

For further information, please contact:

Katie Martin, Head of Communications: [email protected]

T: +44 (0)20 7269 4655

Camilla Esmund, Communications Executive: [email protected]

T: +44 (0)20 7269 4625

IA Press Office: [email protected]

About the Investment Association (IA):

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