Changes to performance targets across Aberdeen Standard Investments’ equity income range could give the asset manager “more wriggle room” when it comes to judging performance in its assessment of value (AoV) reports.
In a letter to investors seen by Portfolio Adviser the fund house flagged seven funds that will see their investment objectives modified to focus on yield and total return in excess of the benchmark index.
These include Charles Luke’s (pictured) £184.6m ASI UK Income Equity fund, Thomas Moore’s £786m UK Income Unconstrained fund and the £678m ASI Europe ex UK Income fund.
ASI equity income funds impacted by changes
- • Aberdeen Standard Oeic I – ASI UK Income Equity Fund
- • Aberdeen Standard Oeic II – ASI UK High Income Equity Fund
- • Aberdeen Standard Oeic II – ASI Global Income Equity Fund
- • Aberdeen Standard Oeic II – ASI Europe ex UK Income Equity Fund
- • Aberdeen Standard Oeic II – ASI Emerging Markets Income Equity Fund
- • Aberdeen Standard Oeic II – ASI American Income Equity Fund
- • Aberdeen Standard Oeic V – ASI UK Income Unconstrained Equity Fund
Source: ASI
In all seven cases performance targets have been amended to reflect the fact the funds will aim to deliver a yield greater than the benchmark over a rolling five-year period before charges.
The same time frame will be used to measure performance with the revamped investment objectives stating the funds will aim to achieve a return “in excess” of their respective benchmarks.
Most of the equity income funds were targeting outperformance of between 2-3% per annum over a three or five-year rolling period before charges.
However the ASI UK High Income Equity and ASI UK Income Unconstrained Equity funds had specific targets to beat the IA UK Equity Income sector average after charges over one year and to be top quartile over rolling three year-periods, while also delivering a yield greater than the FTSE All Share over the same time frame.
Move away from explicit outperformance target gives ASI more wriggle room on AoV reports
AJ Bell head of active portfolios Ryan Hughes said he had “slightly mixed feelings” on the changes.
“My initial reaction is that they are being changed because ASI have realised that they are not achievable but at the same time, the shift to a five-year time horizon is better aligned with how investing in equities is generally referred to,” he said.
Hughes added: “The move away from an explicit outperformance level is the most interesting part as it gives ASI more wriggle room when it comes to their assessment of value reviews.
“Any kind of outperformance will now be judged as a success which will reduce the number of funds that are potentially deemed to be not delivering value.”
‘Refining’ performance targets
The raft of changes is in response to rules brought in by the Financial Conduct Authority in 2019, requiring fund groups to justify their benchmarks and be explicit in descriptions of fund performance targets.
ASI informed investors that year about changes it was making to the funds’ investment objectives from 7 August 2019. But it said now the rules had been in place 18 months it was looking to “refine” the performance targets for some of its funds.
“We have decided to make consistent amendments to the performance targets for each of the funds to consider yield and total return in excess of the benchmark index, rather than having a target which seeks to outperform the benchmark index by a set percentage each year that has been applied to the majority of the funds,” it said in the letter dated 7 June.
“This refocuses the performance target on the key objective of income funds – providing yield, however, still offers a growth element. We believe these changes set more appropriate targets and therefore provide a better measure of success for these funds.”
Tweaks to wording in investment policy
The changes will come into effect on 9 August 2021.
In addition to revising the performance targets the equity income funds have also seen slight tweaks to the wording in their investment policy, including changes to portfolio securities.
Luke’s ASI UK Income Equity fund can now invest up to 20% in non-UK listed companies, for instance. It will also no longer be able to hold up to 10% of the portfolio in bonds.
Last month ASI announced it would be slashing annual management charges across 11 funds, including the £1.1bn Emerging Markets Equity and £1.1bn Asia Pacific Equity funds, following a review of the funds’ pricing.
In April Portfolio Adviser revealed ASI would be shutting its UK Impact -Employment Opportunities Equity fund, which was caught up in the Boohoo scandal last summer.
Last year it also pulled the plug on several funds, including UK Recovery and Global High Yield Bond.
See also: Revealed: ASI to shut impact fund embroiled in Boohoo scandal
