By Kira Nickerson Autif is to introduce a common industry standard for calculating yield on all equi...
By Kira Nickerson
Autif is to introduce a common industry standard for calculating yield on all equity income funds.
As previously reported in Investment Week, the association has already finalised a common way of calculating and reporting bond yields, which groups are expected to enact by 1 September.
Anne McMeehan, communications director at Autif, said: "Income fund investors enter the fund at different times so the yield shown is unlikely to reflect what they will actually receive."
Richard Eats, director at Threadneedle, said: "What you see for the first 12 months is roughly what you get but thereafter most equity income funds offer rising streams of income. It will be useful to have a clear and common standard. What is really valuable is the industry is trying to improve disclosure standards itself, without any pressure from regulators."
The common calculation and reporting will be applied to all equity income funds although Autif stresses this is a voluntary standard and it will be up to individual groups to decide if they use it or not.
The reporting of yields in newspapers and marketing literature will fall under the standard, as the case with bond yields as from 1 September.
McMeehan said: "We are trying to offer guidance and make comparison of these funds easier. We will also seek the support of the FSA, now that we have its support for the bond yield calculation."
At present groups tend to use one of three basic methods of yield calculation, or a combination of these. The historic basis involves working out the actual amount of cash paid out to investors and then applying that to the current price to arrive at the yield. A second method consists of taking the actual income, less expenses for the current distribution period, up to the date it is calculated. A forecast of the income and expenses for the remainder of the time period is taken and added to the total, which is then used to calculate the yield.
The final method involves working out a theoretical income profile for the current portfolio, using dividend rates on underlying equities in the portfolio, and then calculating the income profile as though it were to be held unchanged for a whole year.
Autif is also to look at whether or not charges are applied to income or to capital in a fund, although it is more concerned with how the information is presented rather than where fees are charged to. When comparing funds, there is likely to be an obvious difference in the yield quoted by a fund that charges to income as opposed to one that applies charges to capital.
Once the equity standard has been decided Autif will look at how a standard can be applied to balanced or mixed funds.
McMeehan said: "We need to be sensible in our approach and it may just depend on where the majority of the income comes from, be it the bond portion or equity portion."
Autif said it would like to think the equity income standard could be resolved by Christmas, albeit implementation would be at a later date.
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