New fund launches often sound exciting but, for me, it is the experience of the manager launching the fund that really counts. So the launch of Marlborough’s multi-cap income fund, managed by Giles Hargreave and Siddarth Chand Lall, immediately caught my eye.
The record of Marlborough special situations and Marlborough micro-cap growth should speak for themselves but, for those unaware, the special situations fund is one of the best-performing unit trusts across all sectors since Hargreave took over in July 1998, having risen by 1,138 per cent .
This is Hargreave and Chand Lall’s first foray into equity income and I see no reason why they cannot make the transition. I rarely take much notice of back-testing but it is interesting to note that if the fund had launched a year ago with their current portfolio of stocks, they believe it would have grown by well over 50 per cent – this at a time when equity income has struggled.
A key attraction will be the focus on medium-sized and smaller companies, the managers’ specialist area. Funds from Chelverton and Unicorn have stood out in the smaller company sector recently but few others have. This new fund should be a welcome addition in a market where many well known funds hunt for large caps. The fund will certainly have some exposure to large companies to help with liquidity, which is a key consideration when investing in smaller businesses.
The investable universe for the fund is 717 companies, which Hargreave and Chand Lall reduce to around 500 using their own filters. They look for a minimum dividend yield of 2 per cent but are not chasing yield for the sake of it. They are seeking strong dividend payers that can not only sustain but also grow their dividend in the years ahead. This will become increasingly important, especially for an ageing population faced with rising living costs. In this situation, a growing income is far more valuable than one that is fixed.
Critics might argue there is an over-reliance on Hargreave, chief executive of Hargreave Hale, and point to his age of 62. Having met Mr Hargreave a number of times, I see no sign of his appetite for the job or work ethic waning. Furthermore, he has surrounded himself with a strong team. Co-manager Chand Lall is 31 and joined Hargreave Hale in 2007. Hargreave has blended young and old into a team with more than 125 years of market experience.
The result is a vast amount of contacts and a big network of brokers from which to generate ideas. As stockpickers, they also meet senior management of companies, in many cases having an existing relationships garnered from previous successes.
The team combines this with rigorous analysis of financial statements and testing of their models, looking to establish the sustainability of dividend payments. Their ideas are discussed at formal weekly meetings and when buying this fund, you are buying the decades of experience sat around this table.
A degree of volatility should be expected from a fund focusing on smaller companies but I welcome this in a market dominated by some very big players. This fund could dovetail well with Invesco Perpetual income, Artemis income and PSigma income, all funds I have highlighted before.
Finally, I have to admit that, given the performance of Hargreave and his team over the years, it is a wonder they are not better known. One thing I do know is they will not let this fund grow to billions of pounds. They probably do not want more than about £200m so if you like the story, acting quickly is the order of the day.
Mark Dampier is head of research at Hargreaves Lansdown