“Profitable, cash generative, well financed, dividend paying stocks operating at the lower end of the market cap scale.”
The Unicorn UK Income fund is one of the “core” funds that we use. The fund manager died in 2014 and the fund was taken over by his understudies whom have since run the fund in exactly the same way and process as previous. After an initial dip in 2014, the fund has continued its excellent performance in 2015, significantly outperforming its benchmark and the FTSE100 as follows:
When analysing which funds to invest in we look at lots of different factors and not just performance. By doing this we tend to gravitate towards those funds that have strong processes and a “common sense” approach to investment. These types of fund managers tend to provide more consistent returns and over the longer term outperform. The Unicorn UK Income fund managers invest in smaller UK companies that tend to be under researched and their process identifies profitable, cash generative, well financed, dividend paying stocks operating at the lower end of the market cap scale.
Their edge appears to be the fact that the fund managers themselves, and not an army of analysts, go and regularly visit the companies that they invest in so they get to know the businesses much better than other fund managers. This helps them make the final decision on what to invest in.
We feel that an investment into a fund that invests in some of the UK’s smaller but best run companies will continue to do well in 2016. This is because the fund is exposed to the UK consumer whom is in a strengthening position as a confluence of factors combines to increase discretionary spending power: rising disposable income; imported deflation through the falling price of oil; and falling prices of staple consumer goods.
Consumer confidence should therefore continue to improve while unemployment has now fallen to pre-crisis levels. We believe the interest rate outlook remains favourable for the consumer in what has become a ‘lower for longer’ environment, and, in any event, possible near term rate rises are likely to be modest and have little material impact on consumer spending power.
All of which should help support the companies that the Unicorn UK Income fund invests in.