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Press Release

Friday 2 July 2010 

IMA TO COMBINE UK EQUITY INCOME SECTORS

The Investment Management Association (IMA) announces that, following a full review of the dynamics of the UK Equity Income and UK Equity Income and Growth sectors by the Sectors Committee, and taking into account the needs of consumers and their advisers, the sectors will be recombined with effect from 1 July 2010. Following discussions with the IMA Board, agreement has also been reached to re-state and reinforce the tests to be applied in respect of the income element of the sector definition.

The new UK Equity Income sector will have a revised definition: "Funds which invest at least 80% in UK equities and which intend to achieve a historic yield on the distributable income in excess of 110% of the FTSE All Share yield at the fund's year end."*

The revised definition retains the 110% yield hurdle, but expresses it as an intention which funds will be required to meet over three year rolling periods.  This approach allows funds sufficient flexibility to adjust to changing market conditions in each year.  However it is important that funds in the sector retain their income focus every year, therefore funds will be required to deliver a yield of not less than 90% of the FTSE All Share yield each year.  Yield tests will continue to be applied at each fund's year-end.

To assist users of the sector, such as consumers and their advisers, IMA will in future publish the annual yield figures achieved by each fund on its website. This should aid comparison between the funds.

Richard Saunders, Chief Executive of the IMA, commented: 

"Our priority throughout has been to ensure that income focused funds are clearly identifiable to investors and their advisers.

 "But in addition we have had to consider the most appropriate way of monitoring for income, to ensure that the definition remains fit for purpose for the foreseeable future. It has therefore been decided to apply the 110% yield test over three year rolling periods rather than annually, and to publish information about the yields achieved annually to aid investors to make comparisons between funds. In addition, funds will be required to pass an annual 90% yield test. This approach allows funds sufficient flexibility to adjust to changing market conditions in each year but also ensures that funds deliver a base level of income every year." 

All 20 funds in the UK Equity Income and Growth sector are reclassified to the UK Equity Income sector from 1 July 2010. Funds will retain their track records. 

The UK Equity Income and Growth sector was introduced from 1 January 2009 to accommodate income funds that had failed to meet the yield test for the UK Equity Income sector, in some cases over a number of years.  The key consideration in reaching this decision was to ensure that income-biased funds remained readily identifiable to consumers.  (This aim could not have been achieved by removing funds failing the yield hurdle to the UK All Companies sector.) The UK Equity Income and Growth sector set a lower yield target of 90%.

-ENDS-

For further information, please contact:
Ginny Broad, Head of Communications, IMA, 0207 831 0898 or 07834 089332
Clare Murphy-McGreevey, Press Officer, IMA, 0207 831 0898
Web Site: www.investmentuk.org

Notes to Editors:

*NEW DEFINITION: IMA UK EQUITY INCOME SECTOR (from 1 July 2010)

UK Equity Income

Funds which invest at least 80% in UK equities and which intend to achieve a historic yield on the distributable income in excess of 110% of the FTSE All Share yield at the fund's year end.

Note:

1.       To ensure compliance with the sector criteria, funds should supply data for monitoring to enable the calculation of historic yield based on the IMA guidelines set out in "Yield Calculation and Disclosure by UK Authorised Funds - Guidelines for Managers September 2007".

2. Funds are required to submit yield data at the fund's year end to the sector team at IMA, and at the mid-year when notified by IMA.

3.       To ensure compliance with the intended 110% yield, funds in the sector will be tested over 3 year rolling periods by taking a simple average of the yield figure achieved for each fund at its year end.  Funds that fail to meet the 110% average yield for each 3 year rolling period will be removed from the sector. (As an illustration, this would require a fund that delivered 90% in the first year and 100% in the second year to deliver a yield of 140% in the third year, if it were to be allowed to remain in the sector.) 

4.       Annually, at the fund's year-end, each fund in the sector must achieve a yield of not less than 90% of the FTSE All Share yield.  Funds that fail to do so will be removed from the sector.

5.       IMA will measure yield to one decimal place.

6. IMA will consider adjusting the yield parameters of the sector up or down to account for extraordinary market factors when a request is made by funds in the sector representing either 50% by number or 80% by value.

7. To assist users of the sectors and aid comparison, IMA will publish the annual yield achieved by each fund in the sector.

IMA Sectors Committee

The Sectors Committee is the recently changed name for the Performance Category Review Committee (PCRC), which has responsibility for overseeing the governance of IMA Sectors.  Full details of its terms of reference can be found on the IMA's website, www.investmentuk.org.

FUNDS IN THE NEW IMA UK EQUITY INCOME SECTOR

A total of 106 funds will be in the new IMA UK Equity Income sector.  All 86 funds previously in the UK Equity Income sector and the 20 in the UK Equity Income and Growth sector are included at the outset.

Click here for the full listing. 

PREVIOUS DEFINITION: UK Equity Income 

UK Equity Income (definition to 30 June 2010)

Funds which invest at least 80% in UK equities and which aim to achieve a historic yield on the distributable income in excess of 110% of the FTSE All Share yield at the fund's year end.

General Notes (applying to UK Equity Income and UK Equity Income and Growth sectors):

1. To ensure compliance with the sector criteria, funds should supply data for monitoring to enable the calculation of historic yield based on the IMA guidelines set out in "Yield Calculation and Disclosure by UK Authorised Funds - Guidelines for Managers Sept 2007".

2. IMA reserves the right to amend the yield parameters of the UK Equity Income and the UK Equity Income and Growth sector(s) up or down to account for market factors.

3. IMA reserves the right to adjust the relative yield parameter tests for the UK Equity Income sector and the UK Equity Income and Growth sector should market conditions indicate that this is necessary to ensure the integrity of both sectors.

4. The term "aim" is retained and will have discretionary application to be decided on a case by case basis by IMA/the PCRC. It is not retained to suggest that the yield test is aspirational. As a broad indicator, it could be used for a fund that has to deal with very large cash flows into the fund over a short period, which may impact on the fund's ability in the short term to meet the yield parameter test.

UK Equity Income & Growth (definition to 30 June 2010)

Funds which invest at least 80% of their assets in UK equities, aim to have a historic yield on the distributable income in excess of 90% of the yield of the FTSE All Share Index at the fund's year end and which aim to produce a combination of both income and growth.

Note:

a. On occasions a number of funds may find that their yield at the fund's year end is high enough to qualify for inclusion in the UK Equity Income sector. These funds would remain in the UK Equity Income and Growth sector on these occasions since it is the Manager's stated intention to operate the fund to optimize between capital and income returns.

General Notes (applying to UK Equity Income and UK Equity Income and Growth sectors):

1. To ensure compliance with the sector criteria, funds should supply data for monitoring to enable the calculation of historic yield based on the IMA guidelines set out in "Yield Calculation and Disclosure by UK Authorised Funds - Guidelines for Managers Sept 2007".

2. IMA reserves the right to amend the yield parameters of the UK Equity Income and the UK Equity Income and Growth sector(s) up or down to account for market factors.

3. IMA reserves the right to adjust the relative yield parameter tests for the UK Equity Income sector and the UK Equity Income and Growth sector should market conditions indicate that this is necessary to ensure the integrity of both sectors.

4. The term "aim" is retained and will have discretionary application to be decided on a case by case basis by IMA/the PCRC. It is not retained to suggest that the yield test is aspirational. As a broad indicator, it could be used for a fund that has to deal with very large cash flows into the fund over a short period, which may impact on the fund's ability in the short term to meet the yield parameter test.

About Investment Management Association (IMA)
The IMA is the trade body for the UK's £3 trillion asset management industry. The money its members manage is in a wide variety of investment vehicles including authorised investment funds, pension funds and stocks and shares ISAs. Its role is to represent the industry and promote high standards.

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