Aim: Income and growth by investing in shares of high -yielding UK companies with growing profits and strong cash flows
Minimum investment: Lump sum £1,000
Investment split: 34% FTSE 100 stocks, 27% FTSE 250 stocks, 22% FTSE Small Cap stocks, 14% Aim stocks, 3% FTSE Fledgling stocks
Isa eligible: Yes
Charges: Initial 5.25%, annual 1.5%
Commission: Initial 3%, renewal 0.25%
Tel: 020 7220 9460
London-based fund manager Slater Investments has introduced the MFM Slater income fund to provide income and growth by investing in a broader range of stocks than the FTSE 100.
Hargreaves Lansdown fund analyst Richard Troue points out that the 10 biggest UK companies account for over 40 per cent of the FTSE All Share index while the 15 biggest accounted for over 60 per cent of all dividends paid during the first half of 2011.
“This level of dividend concentration has been reducing over the past couple of years but it is a risk, leaving investors overexposed and under diversified. They are also missing out on the opportunities presented by a vast range of smaller and medium-sized companies, offering attractive yields and the possibility for attractive dividend growth over the longer term.
“Many investors might associate bigger companies with dividends and smaller companies with growth, but this distinction is not set in stone. FTSE 250 companies are now showing faster underlying dividend growth than FTSE 100 companies, for example,” says Troue.
Troue points out that many equity income funds remain focussed on big, cash-generative companies, with strong balance sheet and defensive earning streams. “I remain positive on this area of the market and believe such funds can form the core of an income portfolio. The MFM Slater income fund on the other hand will look for opportunities across the entire market-cap spectrum, with a bias towards opportunities outside the FTSE 100, which Mark Slater believes are often overlooked. He will look for companies with strong cash flow,which are able to sustain and grow dividends, as well as offer the potential for capital appreciation.
With its small and mid-cap bias, Troue thinks the fund will be a higher risk and potentially more volatile proposition. “But I believe it could be a good diversifier in a traditional income portfolio,” says Troue.
The fund ticks a lot of boxes for Troue: an experienced manager; flexible, concentrated approach; and an attractive area of the market where he sees significant long-term potential. “Mark Slater’s growth fund has performed very well since mid-2009 and our analysis suggests good stock selection has been a contributing factor. I’d like to see how his approach translates across to the new fund,” he says.
An obvious competitor in Troue’s view is the Marlborough multi-cap income fund, managed by Giles Hargreave and Siddarth Chand Lall. “It will be interesting to see how these two funds compare as time goes on. They both have experienced, respected managers at the helm and in a sector dominated by bigger companies I welcome funds like this, which offer investors something a little different.”
He adds that it is also worth noting that MAM Funds is set to launch a multi-cap income fund for ex-Gartmore manager Gervais Williams. “With increasing competition in the sector cropping up, managers have plenty of incentives to perform and distinguish themselves. This should be good news for investors.”
Suitability to market: Good
Investment strategy: Good
Adviser remuneration: Average