Fund of the Fortnight: Standard Life UK Equity Income Unconstrained
The latest: Standard Life UK Equity Income Unconstrained
Thomas Moore’s UK Equity Income Unconstrained fund offers investors access to a multi-cap, high conviction approach to equity income investing. The manager adopts a loose, equally weighted approach to portfolio construction; sector allocation can also be more distinct relative to the FTSE 350 index.
The 110% relative dividend yield target is viewed very much from the portfolio level as opposed to the stock specific level. Moore focuses on companies that can offer superior and unrecognised earnings and dividend growth potential; interpretation of the macro backdrop is not a primary driver of stock selection.
While this approach puts a significant amount of emphasis on Moore’s stock picking abilities, he also benefits from input from a highly regarded and experienced UK equity desk at Standard Life in Edinburgh.
The investment style has been volatile – partly as a result of its more focused approach – but this has been more than compensated for by strong relative to peer group performance. The fund sits comfortably in the top quartile over 1, 3 and 5 year annualised periods, while discrete annual performance has also been as strong.
The fund tends to focus on FTSE 350 companies and currently it has 43% invested in large caps and 44% in mid cap. At just over £500m, the mandate remains relatively nimble – offering advantages particularly when investing across small and mid-sized companies. Standard Life has indicated that they will seek to cap inflows into the fund to in order to enable it to retain its higher performance credentials.
Currently Moore remains very selective among UK larger companies, many of which have seen big earnings downgrades – albeit more recently many stocks in the utility, tobacco and consumer staples sectors have been beneficiaries of falling bond yields. Instead he sees the best earnings upgrade stories amongst mid cap / cyclical sectors.
The manager accepts that valuations have become quite polarised in this part of the market, and in response has been topping up holdings in companies where these are more compelling, while reducing exposure to those that appear over-stretched.
Moore anticipates the trigger for markets to shift into the next gear will be either more decisive global economic data and/or further monetary policy support from Europe and Japan – in addition to a continuation of loose policy in the US and UK.
Rob Harley is senior research analyst at Bestinvest
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