An unconstrained mandate allows the Fund Manager to broaden their investable universe - applying it within the equity income sector means the flexibility to avoid less compelling income stalwarts found in more traditional equity income funds, and actively invest into the very best investment opportunities.
Managed by Thomas Moore, the UK Equity Income Unconstrained Fund is ideal for those investors seeking a premium level of income, alongside the potential for capital growth over the longer term. In line with IA sector requirements, the Fund aims to deliver a yield of 110% of the FTSE All-Share Index yield over a rolling three-year period.
The Fund's ‘best ideas' focus enables Thomas to take concentrated (but diversified) positions in his strongest stock ideas, regardless of their benchmark weightings. Thomas manages the Fund using a total return approach which means that he seeks to capture stocks with attractive dividend growth potential alongside holdings that deliver a premium yield to that of the market. He therefore selects stocks for inclusion in the portfolio not solely for their yield characteristics, but also because of their ability to generate capital gains, to pay special dividends and/or to increase their payouts.
Through the unconstrained approach, the UK Equity Income Unconstrained fund offers investors exposure to the Standard Life Investments UK Equity Team's very best capital and income ideas right across the UK market.
Another benefit of the flexible mandate is the ability Thomas has to adapt the portfolio to take advantage of stock opportunities right across the market capitalisation and style spectrum as they arise. The chart below highlights the dividend growth benefits that arise through adopting an unconstrained approach to income investing.
Graph: the benefit of an unconstrained approach to dividend investing
Analysis of dividend payout levels across FTSE 250 Index constituent stocks versus those of FTSE 100 Index constituent stocks suggests that it is the mid-cap (FTSE 250) index that exhibits a more robust track record of dividend growth. Indeed, over the 29 years since the FTSE 250 Index came into existence it has reported a rate of dividend growth significantly in excess of the FTSE 100 Index.
Reasons to take an unconstrained approach
- An unconstrained mandate broadens the investable universe beyond the usual income stalwarts that dominate the UK market.
- This broader approach to income investing limits excessive exposure to these typically lower-growth companies, enhancing total return potential.
- Many large-cap income stocks face the prospect of disappointing earnings growth and low dividend cover, raising the prospect of high-profile dividend cuts in the years ahead. The unconstrained process gives us the flexibility to avoid these areas and focus on the best ideas with the potential for rapid dividend growth.
Find out more at: standardlifeinvestments.com/equityunconstrained
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