Investment Association offers relief to hard-hit equity income funds

FILE PHOTO: The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, April 21, 2020. REUTERS/Staff

LONDON (Reuters) – The Investment Association (IA) has relaxed the eligibility requirements for funds in its UK and Global equity income sectors, as a raft of COVID-19 dividend suspensions meant many were likely to fail annual and three-year tests on yields.

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

The British fund trade body said it would suspend the annual 90% yield threshold test for funds with a year-end after Feb. 29 for 12 months to “ensure the sector could continue to function in the best interests of savers and investors”.

In addition, assessments based on the three-year rolling average of the FTSE All Share and the MSCI World indices will also be shelved indefinitely, pending a review “as the markets settle and the outlook clears”.

The rule changes follow a slew of postponed and cancelled dividend payouts by hundreds of UK and international companies hit hard by the COVID-19 pandemic.

Without these new guidelines, many equity income funds which had suffered falls in income following the dividend cuts might have been ejected from their respective IA sectors.

“The IA’s sectors play a valuable role in helping savers navigate the fund market and make meaningful like-for-like comparisons,” Jonathan Lipkin, Director of Policy, Strategy and Research at the Investment Association said in a statement.

“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’s UK Equity Income and Global Equity Income sectors are comprised of 87 and 57 funds respectively.

Reporting By Sinead Cruise; editing by Simon Jessop

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