The Schroder Income Fund has been transferred to the IA UK All Companies sector from the IA UK Equity Income sector. This is because the fund’s yield has fallen below the level required to remain in the UK Equity Income sector.
The IA (Investment Association) requires funds in the UK Equity Income sector to achieve a yield at least 10% higher than the FTSE All Share Index as at the end of the fund's financial year. This is measured over 3-year rolling periods with an average taken. If the average yield on the fund is not at least 10% higher than the index the fund is removed from the sector. If the yield is subsequently high enough to qualify, the fund will be reinstated to the sector.
If the average yield on the FTSE All Share Index was 3% for example, the fund would be required to yield at least 3.3% to remain in the sector. This is a simplified example, but it illustrates the point. At the end of the Schroder Income Fund’s last financial year it failed to meet the yield requirement.
Around 30 of the largest companies within the FTSE All Share yield in excess of 5%, boosting the yield of the index to 3.4%. The fund's managers seek income opportunities across the entire market, including lower-yielding companies where they anticipate dividend growth. Therefore, they don’t restrict themselves to the highest-yielding companies. This strategy has worked well and the managers have grown the income paid by the portfolio each year since they assumed management in 2010.
The fund's headline yield has not grown to the same extent due to the strong performance of the underlying shares. As share prices rise, yields fall. For example, if a company has a share price of £1 and pays a 5p dividend the yield is 5%. However, if the share price rises to £1.10, the 5p dividend equates to a yield of 4.5%.
|£ paid per unit of Schroder Income||£1.45||£1.72||£1.99||£2.21||£2.54|
|Yield of fund||3.3%||4.2%||3.9%||3.3%||3.4%|
|110% of FTSE All Share yield||3.2%||3.6%||3.6%||3.6%||3.5%|
Yields are not guaranteed and can fall as well as rise.
Over the past three years the fund's total return (capital growth plus reinvested dividends) was 61.9% compared with 46% for the average fund in the IA UK Equity Income sector*, although please remember past performance is not a guide to future returns.
|Annual percentage growth|
| July 10 -
| July 11 -
| July 12 -
| July 13 -
| July 14 -
|IA UK Equity Income||24.01%||-1.95%||20.34%||13.07%||6.69%|
|Schroder Income Fund||17.48%||-3.48%||33.31%||13.98%||6.58%|
Past performance is not a guide to future returns. Source Lipper IM* to 01/07/2015
There has been no change to the way the fund is managed or to its long term objectives. The aim is to achieve an attractive total return over the long term, combining both income and capital growth.
We do not believe any changes to a portfolio are necessary following the announcement, providing the portfolio's objectives, including the level of income generated, continue to be met.
Please note the fund's charges can be taken from capital, which can increase the yield but reduce the potential for capital growth.