Equity income funds and, in particular, their managers may have only really gripped investors’ imagination in the last few years but, as far as Bill Mott is concerned, they are here to stay.
Mott, one of the bestknown UK income fund managers, is throwing himself back into day-to-day management with the launch of the PSigma Investment Management income fund. The fund is the first offering from the new asset manager.
Mott gave up day-to-day management of Credit Suisse Asset Management’s income and monthly income funds in June 2003 but his Mr Income tag never quite went away and was perhaps enhanced as the funds started to drop down the equity income performance tables after his stewardship ended.
Later this month, Mott, along with former Credit Suisse colleagues Graham Fuller and Ian Chimes, will begin competing with the likes of Invesco’s Neil Woodford via PSigma, an investment company set up with Punter Southall.
Mott, who has a doctorate in quantum physics, admits the fund will not be a unique proposition and is naturally cagey about his opening portfolio. “While we are waiting for the regulatory OK there is not a lot we can say except we are launching a brand new equity income fund.”
The PSigma income fund is expected to be operating by mid-March, an ideal time as far as Mott is concerned. He says: “Adviser demand is what has determined the launch. We think it is a good time to be bringing out this fund. Demand for income funds has never been so high.”
He believes that having just one fund will concentrate his efforts and is putting his money where his mouth is by investing what he says is a significant amount of his own money in the fund via his self-invested personal pension.
“You could say we are aligning our interests with our investors,” he says.
Although restricted on what he can say in advance of the launch, some details of the fund are available. It will be an exclusively UK equity income fund and will aim to deliver 110 per cent of the FTSE All Share.
The fund will aim for a yield of around 3 per cent, which Mott says is a realistic expectation at present.
“Although it is a capitalappreciation fund, in that we are looking at growth, we will not be adopting a barbell investment approach and its main aim will be income,” he says.
Mott says managing income is a great discipline. “Managing an income fund is a challenge. Capital growth is one thing but with income the discipline is a useful constraining tool and has delivered excellent returns in the last few years.”
He says the downside is that is hard to find undiscovered areas of income and, with mid caps having done extremely well, the challenge is to find the next big thing, which may or may not signal a return to FTSE 100 favourites.
Mott will not be drawn on where he is looking. “There are some areas of income that have performed well and it will be our job to find income stocks at both sector and stock level.
“Some of the traditional income stocks are not doing so well. For example, utilities have been a classic income-producing area of the market but we would have to question how long that can continue.”
Mott’s fund will not have any significant holdings in cash or convertibles and he will not be deviating from the benchmark FTSE All Share index.
“We could invest in others such as cash and convertibles but virtually all our investment will be in equities.
“Whether an investor has 10,000 or 100,000 to invest, they are putting their money with us on the proviso that we look after it and that means investing it in the market. There will be no core cash holdings in this fund.”
Mott does not seem troubled by recent interest rate increases, nor does he feel that a market correction will disturb the fund.
“The bank has stepped in to stop inflation and the economy is not moving into a slowdown. It is very stable and benign, perfect for equities. On a macro-economic level, you do not get much more stable.”
Mott says his main challenge will be to get his fund in the spotlight. It launches with a three-week offer at a fixed price of 1 a unit until April 5. “It is also just in time for the 2006/07 Isa allowance,” he says.
This timing gives Mott the opportunity to step right into the mainstream. “There are some fantastic managers who have done incredibly well. However, adviser attendance at the pre-launch roadshows has been huge.”
So huge, in fact, that Mott is now getting fan mail. “There was one email sent by an adviser saying, show me when and where and I’ll give you the money. I just hope we can live up to that kind of loyalty.”