Fraser Mackersie and Simon Moon took over the strategy –which still retains a small- and mid-cap focus – in 2014.
Unicorn, which previously said the portfolio would struggle to run more than £750m in assets, said the pair’s shift up the market-cap scale meant capacity was now in excess of £1bn.
The managers previously felt they had a limited ability to invest more in some smaller positions, given the fund’s policy of holding no more than 50 stocks and a maximum of 5 per cent of the issued equity of any individual company.
Yield compression was also a factor behind some of the stock sales, the pair added.
Mr Mackersie said: “The average market cap of the fund has increased during the past two to three years [because] we’ve exited some smaller holdings at the tail end of the portfolio and initiated in a few larger names.
“We would therefore be comfortable with assets in excess of £1bn, but this is constantly reviewed to take into account market conditions.”
The managers sold companies such as Cenkos Securities and Macfarlane Group in favour of larger names.
These latter positions focus on stocks with earnings and dividend growth. This includes the 2.5 per cent of the portfolio allocated to support services business FDM Group, 2 per cent in Card Factory, and 2.3 per cent in pub owner Greene King.
The portfolio’s largest allocation, at 4.2 per cent, is to global flight support business BBA Aviation, which announced a $2bn (£1.4bn) acquisition of US company Landmark Aviation in September last year. The managers called the deal “transformational” for BBA.
Mr Moon said: “It gave the company transformational economies of scale, in that it can increase its network of customer relationships across a large number of sites.”
While many analysts have warned of the negative impact a vote to leave the European Union could have on the UK’s small- and mid-cap firms, the managers have not positioned the fund to prepare for a potential Brexit.
“We speak to all our invested companies about this and by and large they’re very relaxed about the prospects either way with the referendum,” Mr Moon said.
“I think it would be a mistake to try to position the portfolio and second guess the outcome of the referendum, so we’re not going to play a part in that game.
“The underlying growth prospects and valuations of the companies within the fund should probably be defensive enough. If we put a Brexit-likely hat on, I don’t think we’d pick any different companies.”
Instead, the manager said market volatility surrounding the vote could present opportunities to top up positions at attractive prices.
Mr Mackersie added: “One thing we can be certain of is increased volatility in the lead-up to the vote. It’s something that we’re mindful of, but we’ll use any sell-offs in what we think are high-quality names to increase positions.”
Though liquidity can often be an issue when trading small- and mid-cap stocks during times of heightened volatility, the managers are not concerned about this blocking their potential buying opportunities.
“I think liquidity is something we’re always mindful of in the small- and mid-cap space, but we’ve always been comfortable with our ability to trade,” Mr Mackersie said.
The Unicorn UK Income fund has delivered 34 per cent over the past three years, compared with the Investment Association UK Equity Income sector’s average return of 22 per cent in the same period, data from FE Analytics shows.
KEY POSITIONS
19.4%
Amount of Unicorn UK Income fund held in top-five positions
£2bn
Market cap of top holding BBA Aviation
