Best income fund ejected from the sector because it did too well!

SimonBlake

Best UK Income fund can no longer be called an income fund because it did too well! Really amusing, and insightful. Basically, Montanaro UK Equity Income Fund (never heard of them before) was the best UK income fund in 2015, but now it's being 'ejected' from the sector because it did too well and the investment association calculates the yield based on the net asset value at the end of the year. This sounds ridiculous to me, and Montanaro seem to think so too: fundsandshares.co.uk/funds/best-income-fund-controversially-ejected-income-sector/

I totally get their points, and think its ridiculous that like they say if they had lost clients money, then they could remain in the sector! Sounds nuts, but on the upside, opened my eyes to how lesser known fund management companies can perform well.

talexuser

I'd never heard of them too, and follow the sector well. Could well be a flash in the pan performance over a few years which could get them the bottom of the tables quickly if conditions changed. Many funds come out best of the year just to disappear next year and never be heard of again. You need some rules to compare sectors, this one just had too much capital growth to class as income as I remember, and that could just be down to luck. I don't see why they should be complaining, if the performance is that good they should do well in a growth sector.

SimonBlake

talexuser wrote: »

I'd never heard of them too, and follow the sector well. Could well be a flash in the pan performance over a few years which could get them the bottom of the tables quickly if conditions changed. Many funds come out best of the year just to disappear next year and never be heard of again. You need some rules to compare sectors, this one just had too much capital growth to class as income as I remember, and that could just be down to luck. I don't see why they should be complaining, if the performance is that good they should do well in a growth sector.

I suppose they are complaining - and the biggest concern for me as I understand it, is that if the fund performed worse, it could've stayed in its category. So if it could be classified in this sector initially, then why just because it done well should it have to be evicted?

Yep, on the other hand, do need some boundaries and rules. Wonder if other sectors are perhaps more 'competitive' or similar?

talexuser

The argument that losing money would keep them in the sector is fatuous. Any crap fund can stay in a sector by following the rules, it doesn't prove anything. They could have stayed in the sector by having a tiny bit more dividend, and the managers should have known that if on the ball.

Thrugelmir

Has to be a dividing line somewhere. For new investors i.e. 1st January 2016 is it still an income fund?

dunstonh

To exist within a sector, you have to fall within rules of that sector. Performance is not something that would get you ejected. I havent looked to see the real reason they had to leave but would guess it is linked to yield.

masonic

The fund had a lower yield than the FTSE All share. It seems pretty clear that it wasn't an equity income fund and should have been in the growth sector.

Masquerading as in income fund, when it is actually a growth fund, will lead to its investors being misled. Investors in income funds want a high level of income. They also often want a fund that is somewhat defensive and not very volatile, since these are the typical characteristics of the sector.

talexuser

I suspect they are complaining because they may get less business not being classed as income in these times of low rates.

Dird

How can there be low yield with 20% ROI? too much share price growth not enough dividends?

jimjames

Dird wrote: »

How can there be low yield with 20% ROI? too much share price growth not enough dividends?

Surely high growth will reduce yield so that could be the reason

masonic

Dird wrote: »

How can there be low yield with 20% ROI? too much share price growth not enough dividends?

Exactly that. Yield in this context refers to dividends only. Personally, I'm not concerned whether my return comes from capital or income, but there are many people who are reliant on regular dividends and very averse to drawing down their capital. Those are the people who would care about whether a fund was in the equity income sector.