Invesco Perpetual High Income dropped from equity income sector

At the end of Invesco Perpetual High Income's last financial year it had failed to meet the yield requirement to remain in the IMA UK Equity Income sector. The main reason is because the underlying shares have performed strongly over the past three years. As share prices rise, yields fall.

To be included in the UK Equity Income sector funds must invest at least 80 per cent in UK equities and intend to achieve a historic yield on the distributable income in excess of 110 per cent of the FTSE All-Share yield at the fund's year end.

Mark Barnett has run Invesco Perpetual Income and High Income since 6 March, an earlier start than expected because Mr Woodford does not leave the company until the end of this month. Mr Barnett has run Invesco Perpetual UK Strategic Income since January 2006.

Richard Troue, investment analyst at Hargreaves Lansdown says: "Because the reclassification of the fund into the IMA UK All Companies sector is largely a result of the recent strong performance we do not believe investors need to take any action following the announcement, providing the fund still meets their objective and they are happy with the level of income being generated."

Due to the similarities in their investment approach, the Invesco Perpetual Income (GB0033053827) and Invesco Perpetual UK Strategic Income (GB00B1W7J535) funds are also likely to move out of the UK Equity Income sector into the UK All Companies sector later in 2014.

To ensure compliance with the intended 110 per cent yield, funds in the sector are tested over three year rolling periods by taking a simple average of the yield figure achieved for each fund at its year end. Funds that fail to meet the 110 per cent average yield for each three-year rolling period are removed from the sector. Annually, at the fund’s year-end, each fund in the sector must also achieve a yield of not less than 90 per cent of the FTSE All-Share yield.

But Invesco does not plan to change its approach. "The long-term balance between income generation and capital growth is the hallmark of successful equity income investing," said Ian Trevers, head of UK retail at Invesco Perpetual. "Over many years our equity income funds have delivered a significant income stream to investors as well as substantially growing their capital. The interests of clients in these particular funds are best served by us continuing to focus on providing a growing level of income, balanced with the opportunity for capital growth over the long term. We are comfortable that these three funds will have a different IMA classification. Our clients and their advisers can be confident that this sector change will not impact the way their investments are managed."

Source: Morningstar, *Invesco Perpetual.

Source: Morningstar as at 31 March 2014

Top ten holdings as at 28 February 2014

Sector breakdown as at 28 February 2014

FURTHER READING

Read more on the Mark Barnett succession: Invesco: should I stay or should I go?

Read more on Neil Woodford’s future plans: Woodford to launch asset management business out of Oakely Capital