IA issues new guidance on equity income sectors in light of COVID-19

Wednesday 22 April 2020

New guidelines have been issued today by the Investment Association (IA) on the UK Equity Income and Global Equity Income sectors, to ensure that in light of COVID-19 they can continue to function effectively in the best interests of savers and investors. 

The IA’s UK Equity Income and Global Equity Income sectors are comprised of 87 and 57 funds respectively, which aim to provide investors with a regular income based on the dividend payments from the companies the fund is invested in. 

In light of COVID-19, many companies have reviewed their dividends with some suspending or postponing payments, which in turn has impacted on equity income funds. This mean that some funds may be unable to meet the requirements to be included in these sectors, including two tests based on the annual and three year rolling average yields of the FTSE All Share and the MSCI World indices.

The new guidelines are designed to prevent any short-term disruption to these sectors, so that savers can continue to easily identify and compare equity income funds. They will also enable fund managers to focus on long-term outcomes for savers, instead of potentially needing to make immediate changes to meet sector requirements. As such, with immediate effect:     

• The enforcement of the annual 90% yield threshold test will be suspended for funds with a year end after the end of February 2020. This suspension will last twelve months and means any fund currently in these sectors which does not meet the annual yield limit will now not be automatically removed from the sector. 
• The enforcement of the three year test will be suspended as the current circumstances will also impact on the three year rolling average yield. The IA will review the application of the three year rolling test as the markets settle and the outlook clears.
• Monthly monitoring data will continue to be published publicly on the IA’s website to ensure ongoing transparency so that savers can access up-to-date information about fund performance.

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

“The IA’s sectors play a valuable role in helping savers navigate the fund market and make meaningful like-for-like comparisons. The measures we’ve introduced today will continue to provide savers with transparency on fund performance, while helping prevent short-term disruption to the equity income sectors, which are particularly affected by the economic consequences of COVID-19.”

ENDS

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.