Equity Income sector must evolve

The IA has launched a consultation into the criteria for UK Equity Income sector membership. This follows the removal of several funds from the sector over the last few months – including Evenlode.

At Evenlode, we think an income fund works best when it delivers a balance between income today and income growth in the future. Both factors are important, and neither factor on its own is enough to generate a meaningful, sustainable and inflation-proofed income stream. The IA has proposed three options in its consultation and we believe it should implement Option 3, removing the hard yield hurdle and replacing it with better and more consistent income delivery disclosure. We currently quote Evenlode’s yield and dividend growth history on our factsheet. The IA’s idea to disclose the amount of income generated over 5yrs from a £100 investment is good, and we will add this to our factsheet. A key advantage of this is it compares dividends produced to the initial investment value rather than current value. In this way, it does not 'punish' good performance. Over the 5yrs to February 29th, Evenlode produced a return of 44.7%, compared to 7.7% for the UK market. Ironically, if Evenlode had only performed in-line with the market, the fund's yield would have been 5.1% at end February, rather than the actual 3.8%.

Evenlode's natural home is the Equity Income sector. Whatever the result of the consultation, we expect to be reinstated in the future, once the current dividend anomalies wash through.

In the meantime, we will continue to run Evenlode as we have done over the last six and a half years, and the provision of an attractive, sustainable and growing dividend stream remains a key long-term objective.