Industry Voice: The freedom to perform


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.

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This document is for investment professionals only and should not be distributed to or relied upon by retail clients. It is only intended for use in jurisdictions where the relevant funds are authorised for distribution or where no such authorisation is required.

Important Information
This material is for informational purposes only. This should not be relied upon as a forecast, research or investment advice. It does not constitute an offer, or solicitation of an offer, to sell or buy any securities or an endorsement with respect to any investment vehicle. The opinions expressed are those of Standard Life Investments and are subject to change at any time due to changes in market or economic conditions.

Third party data services disclaimer
Any data contained herein which is attributed to a third party ("Third Party Data") is the property of (a) third party supplier(s) (the "Owner") and is licensed for use by Standard Life**. Third Party Data may not be copied or distributed. Third Party Data is provided "as is" and is not warranted to be accurate, complete or timely. To the extent permitted by applicable law, none of the Owner, Standard Life** or any other third party (including any third party involved in providing and/or compiling Third Party Data) shall have any liability for Third Party Data or for any use made of Third Party Data. Past performance is no guarantee of future results. Neither the Owner nor any other third party sponsors, endorses or promotes the fund or product to which Third Party Data relates.

**Standard Life means the relevant member of the Standard Life group, being Standard Life plc together with its subsidiaries, subsidiary undertakings and associated companies (whether direct or indirect) from time to time.

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