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OPM cuts duplicate risk

OPM Fund Management says one of the advantages of its multi-manager approach to equity income funds is there is little “unintentional risk” in its equity high-income fund.

Unintentional risk is the term OPM uses to describe an overlapping of top 10 holdings that could occur if an investor holds several equity income funds. The firm says simply holding more than one equity income fund does not necessarily provide diversification as they could have many stocks in common. To reduce unintentional risk, OPM blends its holdings in equity income funds that have a specific focus. For example, it holds the Chelverton UK equity income fund to generate income specifically from UK smaller companies. This fund will complement, not overlap with, a traditional equity income fund such as the Neptune income fund. This takes a bottom up stockpicking approach, using analysis of cashflow and balance sheets.

OPM also holds direct equities to benefit from short-term price anomalies that would not be easy to access through an equity income fund.

Chief investment officer Tony Yousefian says: “The way we blend funds makes it different to single-strategy funds. The biggest danger of single funds is even though IFAs may get the UK equity income call right, if the manager they pick does not do their job, they are stuck with him until they change him. Multi-managers can pick and change managers at any given time.”

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