Investment Assoc relaxes rules for dividend funds

The UK’s Investment Association (IA) has suspended yield requirements for equity income funds as dividends dry up during the Covid-19 pandemic.

The IA said it has relaxed the eligibility requirements for funds in its UK and global equity income sectors as a number of dividend suspensions meant many funds may have failed annual and three-year tests on yields.

The IA, which oversees the rules that govern the popular dividend-paying funds, said it will relax them for the duration of the Covid-19 crisis.

The move provides a lifeline to more than 140 funds that could otherwise have faced ejection from the UK trade body’s widely followed sector lists.

The IA has about 250 members that oversee about £7.7 trillion of assets.

“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,” said the IA.

“This means 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.”

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.”

The IA said that 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 12 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.

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Mark McSherry
Dalriada Media LLC sites are edited by veteran news journalist Mark McSherry, a former staff editor and reporter with Reuters, Bloomberg and major newspapers including the South China Morning Post, London's Sunday Times and The Scotsman. McSherry's journalism has also appeared in The Washington Post, The Guardian, The Independent, The New York Times, London's Evening Standard and Forbes. McSherry is also a professor of journalism and communication arts in universities and colleges in New York City. Scottish-born McSherry has an MBA from the University of Edinburgh and a Certificate in Global Affairs from New York University.