The Unicorn Income Fund
Medical Money Management (MMM) operates a series of risk-targeted Investment Portfolios, each incorporating a number of investment funds, selected after significant research and fund manager interviews. In this first issue, we provide an insight into one of the funds that we are currently using. This time the fund under focus is the Unicorn Income Fund.
Why is the Fund held in the Portfolios?
The Unicorn UK Income Fund (the “Fund”) provides our portfolios with a diversified income stream outside of the FTSE 100 where most other traditional UK Equity Income funds invest. It has a low correlation to the rest of the sector and helps to diversify the overall risk of the portfolios. The concentration of dividends in the UK is one of the primary risks of the UK Equity Income sector, hence why this fund is in the portfolios, and 2015 is a great example of this approach paying off with the fund significantly outperforming the sector year to date (+12% v UK Equity Income Sector +1.8%)*
* Source: FE Trustnet 14/12/2015
What makes it different from other funds in its sector?
90% of all dividends paid in the UK come from the FTSE 100*. As a result a large proportion of the circa 90 Funds in the UK Equity Income sector have a strong large cap bias. Unicorn follows a different approach, generating a significant proportion of its dividend income from Small and Mid-Cap stocks. This approach gives it a low correlation with the majority of the peer group and provides our investors with a differentiated and complementary income stream.
Unicorn’s belief is that the best companies should be able to pay a dividend and grow earnings and considers that UK Small Medium Enterprises provide the best source of such companies in contrast to many large cap companies which are largely “income stories”, offering little in the way of earnings growth.
* Source: Capita 09/01/2014
The Outlook for the Fund
The Fund currently has a strong bias towards the domestic economy, and in particular the UK consumer, which Unicorn’s managers feel continues to benefit from low interest rates, low inflation and rising real wages. Unicorn has no exposure to commodity based stocks – an approach which has served it particularly well during 2015, and it remains comfortable with this positioning moving into 2016. Falling dividend cover on the FTSE 100 remains an issue for income investors and following some high profile dividend cuts this year the risk of further cuts in 2016 remains high in its opinion. This is in contrast to the well covered dividend characteristics of the underlying holdings within the Unicorn UK Income Fund.
The Fund Managers
Simon Moon (left) has been co-manager of the Unicorn UK Income Fund and Acorn Investment Fund and lead manager of the Unicorn Smaller Companies Fund since 2013. He joined Unicorn Asset Management in 2008, and since then he has been an active member of the Unicorn Investment Committee. Prior to joining Unicorn, Simon worked as a research analyst at JM Finn & Co. Stockbrokers and spent three years in the National Health Service’s Graduate Finance Scheme.
Fraser Mackersie is co-manager of Unicorn UK Income Fund and lead manager of Unicorn UK Growth Fund. He qualified as a Chartered Certified Accountant (ACCA) in October 2006 having graduated with a BSc (Hons) in Economics & Management from the University of St. Andrews in 2003. He then spent two years with F&C Asset Management Plc before joining Unicorn in 2008.
Whilst MMM tends not to consider external ratings when selecting suitable investment funds, preferring to rely on internal research and interviews with the individual Fund Management teams, it is interesting to note ratings that the Fund has received:
The Fund was launched in May 2004, and since then has grown to £648.7m as at 30/11/2015. The graph below shows the Fund’s performance since launch against its own benchmark of the FTSE All Share index, and the sector in which the Fund sits, being the UK Equity Income sector.
MMM would like to thank Unicorn Asset Management in the compilation of this narrative.
Please note that past performance is no guarantee of future performance and that the value of units held, and any income derived from them, may fall as well as rise. Where a fund holds assets outside of the UK, fluctuations in exchange rates will affect the value of the investment.
This article should not be taken as advice or as a recommendation to invest in the Fund. The Fund is selected by MMM’s Investment Committee as a constituent of a series of risk-targeted portfolios. The Fund has particular characteristics that enable it to blend with other funds within the portfolios. Advice should be sought before investing in the Fund. The Fund will not be suitable for all investors, particularly if held in isolation.