Mark Dampier: Growth at smaller firms allows funds to diversify

The Analyst

Like a good football scout I am always looking for new talent that might become a Premier League star of tomorrow. Thomas Moore might be one such fund manager. He took over Standard Life UK Equity Income Unconstrained fund at the start of 2009 after it had endured a terrible time. He has since turned its performance round, and is in his fourth year of managing the fund.

The fund is in the UK equity income sector where famous names such as Neil Woodford, Anthony Nutt and Bill Mott also reside. There is little point in trying to take these household names head on. They all have good records of growing both income and capital for investors, so how does he differentiate the fund?

As the name suggests, it is a focused portfolio of best ideas. The top 10 positions account for about 40 per cent, which means each one makes a real difference to performance. It's an approach I tend to favour as it means a fund has greater capacity to outperform in the hands of a good manager, though it does tend to increase volatility. It is by examining these top holdings that you find the fund is doing something different to most others in the sector.

The top holding is Petrofac, which perhaps typifies what Mr Moore is looking for. The share yields less than the market but the company has more than trebled its dividend since 2007. He doesn't target a high yield today, instead looking for growing companies where dividends are rising strongly from a lower base. Other holdings in the top 10 include publishing and events group Informa, packaging specialist DS Smith, and aerospace engineer Senior.

These are all shares not typically found in the top 10 of well-known funds in the sector. They tend to focus on recognised blue chips such as Shell and GlaxoSmithKline. Therefore, Mr Moore sees his fund as a complement rather than a competitor to Neil Woodford and the like. I think this is right. There is little point in buying two funds that have very similar holdings.

Mr Moore is well supported by the Standard Life UK equity team and, in particular, their proprietary stock screening system known as the Matrix. This system analyses a number of important factors such as valuation, earnings momentum and balance sheet quality, ranking the shares in order of preference. The fund managers can then prioritise further research accordingly. Although the system tends to not work so well around market inflection points it has done a good job over the longer term.

You might think it has been plain sailing due to the timing of his appointment to the fund. After all, the market has risen substantially since. However, we have seen a succession of short, sharp cycles over the last couple of years as risk appetite has risen and fallen. Many of the fund's holdings are perceived to be highly economically sensitive, and the third quarter of 2011 was particularly hard on the fund. These areas, especially smaller companies, suffered. In contrast, more defensive stocks such as pharmaceuticals came to the fore, favouring the more established managers with exposure to these areas. However, since the start of the year it is one of the best performing funds in the sector, up by over 10 per cent.

This illustrates how it isn't closely correlated with others in the equity income sector, making it useful in terms of constructing an income producing portfolio. Unlike many others it is small and nimble, able to take meaningful positions in smaller and medium-sized companies. This allows income investors to diversify and potentially benefit from the higher levels of growth among smaller firms. Mr Moore is still quite young, but with a team of seasoned professionals around him such as Harry Nimmo he has great experience to draw upon. I certainly hope Mr Moore can continue to perform well as the active fund industry needs its future champions.

Mark Dampier is head of research at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more details about the funds included in this column, visit www.hl.co.uk/independent

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Guru Careers: Tax Manager / Accountant

    £35 - £50k DOE: Guru Careers: A Tax Manager / Accountant (ACA / CA / CTA) is n...

    Ashdown Group: Contracts Executive - City of London

    £35000 - £37000 per annum + benefits: Ashdown Group: Contracts Executive - Cit...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE £45K: SThree: SThree Group have been well esta...

    Recruitment Genius: Call Centre Debt Collector - Multiple Roles

    £21000 per annum: Recruitment Genius: This is an exciting opportunity to join ...

    Day In a Page

    Giants Club: After wholesale butchery of Idi Amin's regime, Uganda’s giants flourish once again

    Uganda's giants are flourishing once again

    After the wholesale butchery of Idi Amin's regime, elephant populations are finally recovering
    The London: After 350 years, the riddle of Britain's exploding fleet is finally solved

    After 350 years, the riddle of Britain's exploding fleet is finally solved

    Archaeologists will recover a crucial item from the wreck of the London which could help shed more light on what happened in the vessel's final seconds
    Airbus has patented a jet that could fly from London to New York in one hour

    Airbus has patented a jet that could fly from London to New York in one hour

    The invention involves turbojets and ramjets - a type of jet engine - and a rocket motor
    10 best sun creams for kids

    10 best sun creams for kids

    Protect delicate and sensitive skin with products specially formulated for little ones
    Tate Sensorium: New exhibition at Tate Britain invites art lovers to taste, smell and hear art

    Tate Sensorium

    New exhibition at Tate Britain invites art lovers to taste, smell and hear art
    Ashes 2015: Nice guy Steven Finn is making up for lost time – and quickly

    Nice guy Finn is making up for lost time – and quickly

    He was man-of-the-match in the third Test following his recall to the England side
    Ashes 2015: Remember Ashton Agar? The No 11 that nearly toppled England

    Remember Ashton Agar?

    The No 11 that nearly toppled England
    Turkey-Kurdish conflict: Obama's deal with Ankara is a betrayal of Syrian Kurds and may not even weaken Isis

    US betrayal of old ally brings limited reward

    Since the accord, the Turks have only waged war on Kurds while no US bomber has used Incirlik airbase, says Patrick Cockburn
    VIPs gather for opening of second Suez Canal - but doubts linger over security

    'A gift from Egypt to the rest of the world'

    VIPs gather for opening of second Suez Canal - but is it really needed?
    Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

    Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

    Fashion editor, Alexander Fury, applauds a man who clearly has more important things on his mind
    The male menopause and intimations of mortality

    Aches, pains and an inkling of mortality

    So the male menopause is real, they say, but what would the Victorians, 'old' at 30, think of that, asks DJ Taylor
    Man Booker Prize 2015: Anna Smaill - How can I possibly be on the list with these writers I have idolised?

    'How can I possibly be on the list with these writers I have idolised?'

    Man Booker Prize nominee Anna Smaill on the rise of Kiwi lit
    Bettany Hughes interview: The historian on how Socrates would have solved Greece's problems

    Bettany Hughes interview

    The historian on how Socrates would have solved Greece's problems
    Art of the state: Pyongyang propaganda posters to be exhibited in China

    Art of the state

    Pyongyang propaganda posters to be exhibited in China
    Mildreds and Vanilla Black have given vegetarian food a makeover in new cookbooks

    Vegetarian food gets a makeover

    Long-time vegetarian Holly Williams tries to recreate some of the inventive recipes in Mildreds and Vanilla Black's new cookbooks