The Investment Management Association is right to enforce rules forcing low-yielding funds out of the equity income sector, according to Allianz's Simon Gergel.
The manager of the Merchants Trust and the Allianz UK Equity Income fund said it is fine for funds to use different styles - including a Barbell approach of high and low yielding stocks - but argued managers must accept the consequences if there is an impact on the overall yield.
He said: “I am pleased the IMA is finally policing the sector. Investors want a product investing in high-yielding shares to generate good income returns.
"There are some funds in the sector that have not had high enough yield to qualify. I am pleased they are going to go into a more mainstream sector.”
Some funds in the sector have not had high enough yield to qualify
The IMA’s definition of equity income has come under scrutiny after a number of high-profile ejections from the sector.
Veteran Henderson manager James Henderson criticised the IMA’s yield criteria in 2013, after his top-performing UK Equity Income fund was forced out of the sector.
In March this year, Invesco Perpetual confirmed Mark Barnett’s High Income fund would exit the sector, due to constraints around the three-year yield requirement. Barnett's other huge income fund may also exit the sector.
IMA sectors head Nicola Kembey told Investment Week in May the trade body is always open to views about changing the sector rules.
However, she added: “There is always a diversity of views on the parameters, and how they are set and monitored. We have to take account of it in the round.”
