The MI Select Manager UK Equity Income fund adopts a manager of manager approach through selecting high conviction fund managers that have proven track records in delivering alpha for clients. The fund gives investors exposure to 3 different UK Equity Income fund managers with the aim of delivering a robust total return whilst providing an income. Recognising that different approaches to investing perform differently in any given phase of an economic and market cycle, we’ve blended high conviction, specific style approaches to increase the odds of outperformance on a consistent basis.
In doing this we appointed Richard Colwell and his team to manage a copy of their flagship Threadneedle UK Equity Income fund. The investment approach places an emphasis on the broader macro-economic outlook leading to some clearly defined themes. The fund will, however, combine this with the use of bottom-up fundamental analysis. There is a preference for companies with strong management, a sustainable franchise, a healthy balance sheet and highly visible cash-flows. Interestingly, Colwell isn’t afraid to invest in some of the more contrarian parts of the market in the search for yield. This has proved a profitable hunting ground for the strategy over the long-term.
The second strategy is reassuringly focused on investing in quality companies. Managed by Blake Hutchins at Investec, the fund aligns itself to three beliefs; Sustainable dividend growth is more important than headline dividend yield, especially when backed by cashflow. Companies with high or improving ROIC with low capital intensity are most likely to grow their dividends and deliver attractive total shareholder returns. Quality companies with attractive valuations helps to manage downside risk and avoid permanent loss of capital.
The third strategy is run by Henry Dixon of Man GLG. The UK Equity Income fund is highly correlated with their flagship undervalued assets fund and is a process and team we have a high degree of conviction in. The Income fund targets companies already uncovered by the Undervalued Assets process, however in addition a focus on companies with materially stronger balance sheets than the market where the potential for dividend growth is high accounts for 33% of the fund. Interestingly, and through their entire analysis of the capital structure, bond opportunities may arise where they see attractive income complemented by capital appreciation, however will be limited in exposure.
The three strategies all provide income, however importantly go about it in very different ways.
Tom Jemmett, CFA
Past performance is not a guide to future performance.
The value of investments can fall and you may get back less than you invested.