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Moore the merrier

Like a football scout, I am always looking for new talent that might become a Premier league star of tomorrow. Thomas Moore might be one such fund manager. He took over Standard Life’s UK equity income unconstrained fund in 2009 after it had endured a terrible time. He has since turned performance round and is in his fourth year of managing the fund.

The fund is in the UK equity income sector, where Neil Woodford, Anthony Nutt and Bill Mott also reside. There is little point in trying to take these household names headon. They all have good records of growing both income and capital for investors, so how does he differentiate the fund?

It is a focused portfolio of best ideas. The top 10 positions account for about 40 per cent, meaning each one makes a real difference to performance. It is an approach I tend to favour as it means a fund has greater capacity to outperform in the hands of a good manager, although it can increase volatility. Examining these top holdings shows how the fund is doing something different to most others in the sector.

The top holding is Petrofac, which typifies what Moore is looking for. The share yields less than the market but the company has more than trebled its dividend since 2007. Moore does not target a high yield today, instead looking for growing companies where dividends are rising strongly from a lower base. Other holdings in the top 10 include publishing and events group Informa, packaging specialist DS Smith and aerospace engineer Senior.

These are all shares not typically found in the top 10 of well known funds in the sector. They tend to focus on recognised blue chips such as Shell and GlaxoSmithKline. Therefore, Moore sees his fund as a complement rather than a competitor to Neil Woodford and the like. There is little point in buying two funds that have very similar holdings.

Moore is well supported by the Standard Life UK equity team and, in particular, their proprietary stock-screening system known as the Matrix. This analyses important factors such as valuation, earnings momentum and balance-sheet quality, ranking the shares in order of preference. The managers can then prioritise further research accordingly. The system tends to not work so well around market inflection points but it has done a good job in the longer term.

You might think it has been plain sailing due to the timing of his appointment to the fund. After all, the market has risen substantially since. However, we have seen a succession of short, sharp cycles over the last couple of years as risk appetite has risen and fallen. Many of the fund’s holdings are perceived to be highly economically sensitive and the third quarter of 2011 was particularly hard on the fund.

These areas, especially smaller companies, suffered. In contrast, more defensive stocks such as pharmaceuticals came to the fore, favouring the more established managers with exposure to these areas. However, since the start of the year, it is one of the bestperforming funds in the sector up by more than 10 per cent.

This illustrates how it is not closely correlated with others in the equity income sector, making it useful in terms of constructing an incomeproducing portfolio. Unlike many others, it is small and nimble, able to take meaningful positions in smaller and medium-sized companies.

This allows income investors to diversify and potentially benefit from the higher levels of growth among smaller firms. Moore is still quite young but with a team of seasoned professionals around him such as Harry Nimmo, he has great experience to draw upon. I certainly hope Moore can continue to perform well as the active fund industry needs its future champions.

Mark Dampier is head of research at Hargreaves Lansdown

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