Fund of the week: Shunning the herd for the minnows

So who is running 2012’s fund of the year? According to Amandine Theirree, a fund analyst at FE Trustnet, writing in Fundstrategy, the answer is John McClure. He is the manager of the Unicorn UK Income Fund and over the last 12 months he’s had a strong run.

For the year so far the fund is up just over 32%, comfortably beating both the Investment Management Association (IMA) UK Equity Income benchmark (up 16%) and the IMA UK Smaller Companies benchmark (up just under 20%), not to mention the FTSE Smaller Companies index, which is up just over 25%. That’s why he is positioned first for performance in his sector, according to Trustnet data, beating more than 90 other funds over both one and three years.

The choice of benchmarks is a clue to his approach, which “sets him apart from the rest of the UK equity-income sector in which most funds look decidedly similar”, as Thierree puts it. McClure shuns FTSE 100 stocks – a common hunting ground for steady income payers – and instead goes after smaller firms. This may mean he sacrifices some income (the yield is a solid, but modest, 3.64%), but it also means he avoids the reliance on just a few big income-paying names that is the hallmark of other income funds.

The fact this fund is small – the fund size is currently £79m – is “another plus”, as it means liquidity “is not really a problem”. Historically, Thierree is particularly impressed with McClure’s ability to deal with “inevitable periods of underperformance”. The minimum investment is £2,500 (or £100 a month via a savings plan) and the total expense ratio comes in at 1.59%.

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Unicorn UK income fund chart

Unicorn UK Income Fund top ten holdings

Name of holding % of assets
VP 5.1%
Brewin Dolphin Holdings 5.0%
Mucklow Group 4.8%
James Halstead 4.6%
Arbuthnot Banking Group 4.3%
Cineworld Group 4.3%
UK Mail Group 4.3%
Castings 4.2%
Lookers 4.2%
British Polythene Industries 3.8%