McKenzie to focus on SMEs for UK Income fund

The group recently hired former Aviva Investors and Martin Currie manager Scott McKenzie to run the fund, which will invest in a concentrated portfolio of 30-45 stocks.

While most funds in the UK Equity Income peer group have a skew towards large caps, there will be some competition for the Saracen fund from the likes of mid- and small-cap specialists Unicorn Asset Management and Chelverton Asset Management.

Mr McKenzie, who said he had invested heavily in the fund, hoped it would stand out in the crowded UK Equity Income sector, given its skew towards mid and small caps and his decision to eschew income stalwarts such as AstraZeneca and oil majors BP and Royal Dutch Shell.

The manager said he and his small team of analysts research each stock for inclusion in the portfolio, a process that includes writing their own business model for each company looking at the best and worst scenarios for each business in the coming years.

This process led to the firm selling Tesco in October 2013 from its Growth fund, well before the issues emerged recently that led to the drastic falls in its share price and a cut in its dividend.

Mr McKenzie said all the stocks he held in the portfolio would pay a dividend, and that “we should sell” companies that cut their dividends.

He cited his holding in Lloyds Banking Group, which recently paid its first dividend since its government bailout.

The bank had been “through really tough times”, he said, but would “recover in the next five years”.

Mr McKenzie said his fund had 39 per cent in mid caps and 23 per cent in small caps.

He added more smaller companies were now focused on paying dividends, whereas 10 years ago “none cared”.

He said this had driven the creation of more funds focusing on the sector.