“In talking to fund managers, many have found the yield objective too hard to achieve in the current environment without overly concentrating their portfolios,” said APFI lead Jon Beckett.
“When fund managers become disenfranchised from achieving yield then this can have a knock-on impact for investors, especially since the advent of ‘pension freedoms’. A total return product cannot be considered a reliable source of income and places no obligations on the fund manager.”
Beckett added that the sector is now “at a cross-roads” between adhering to yield limits or relaxing requirements and changing fund objectives, at a time when investors are concerned about sustainable income more than ever before.
“In the last few years we have already seen consolidation among so-called ‘high income’ funds, merged into lower yielding products. Other issues that need to be discussed include the use of yield enhancing strategies such as call option overwriting.
“Fund managers who then consciously no longer target a yield should be forced to ensure that the name of their fund reflects this fact.”
