The IMA Performance Category Review Committee (PCRC) is looking at the way charges are taken off cap...
The IMA Performance Category Review Committee (PCRC) is looking at the way charges are taken off capital and income in the UK Equity Income sector.
The committee is in early discussions as to how it can clarify the presentation of the charges, as some 85% of groups are now offsetting fees to capital, rather than income, on their UK equity income funds as the marketing battlefield shifts from total return to yield.
After a 12-month period that has seen the UK equity income sector post growth of -23.7% after charges, yield is increasingly viewed as a key differentiating selling point.
The move to 85% of groups charging to capital is up from 80% in 2001, while a third of funds in the Corporate Bond sector now charge to capital, compared with only 25% in 2001, according to data from the IMA.
Funds that have changed their charging structure from taking from income to capital in the past year include Artemis Income and Invesco Perpetual Income in the equity income sector, and Baring Sterling Corporate Bond and BWD Rensburg Corporate Bond in the corporate bond sector.
Ian Pascal, marketing director at Baring Asset Management, said the change in charging structure was to make the fund's yield more competitive.
'The reality is that most people would rather accept potential capital erosion to receive a higher income now and hope that an element of capital growth in the future will offset that charge,' Pascal said.
Further groups are expected to follow suit. JP Morgan Fleming's UK Equity Income fund, which currently resides in the UK All Companies sector, is to be moved to the UK Equity Income sector and subject to shareholder approval, will change its charging structure.
DWS Investments UK Equity Plus, set to be launched later in the month, will also charge to capital, as it is targeting a gross yield of 6%.
New Star, which is set to buy Aberdeen's Sterling Bond, Fixed Interest and High Yield funds, will offer funds with both options.
The Aberdeen Fixed Interest and High Yield funds charge expenses to capital, while New Star's two income-generating funds, Higher Income and High Yield Bond, charge to income.
The group plans to keep the charging structure unaltered due to demand from the Aberdeen funds' unitholders.
While the vast majority of active fund managers now charge to capital, a number of groups, including Aegon, NPI and Halifax, have no plans to change their charging structures.
Helen McGill, head of product strategy at Aegon, said concern over the potential effects of capital erosion was the main driver behind its charging policy.
'Taking charges from income can be misleading because capital is not maintained. Some investors want their capital to stay intact when having their money in income funds,' McGill said.
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