The one-year-old Octopus UK Multi Cap Income fund has outperformed every portfolio in its sector in its first year of operating despite “challenging” circumstances.
Octopus Investments launched the £7.8m fund in December last year and on its first anniversary (December 10) the portfolio had returned 24.4 per cent, beating the IA UK Equity Income Sector of 11.9 per cent for the same 12-month period.
By comparison the FTSE All Share Index returned 13.9 per cent over the same period.
The fund was also the best performer for the year to December 10 in the 86-strong group.
Chris McVey, the fund’s manager, put the success down to its “core and satellite” approach.
This involved “core” stocks which paid steady dividends and had good potential for growth and two “satellite” clusters: one focused on big dividend paying companies and the other on faster growth with lower dividends.
According to Mr McVey the ‘growth’ cluster was responsible for much of the fund’s out-performance as the faster growing companies had a “very good year”.
Mr McVey said: “They’re not smaller companies but they’re just not the standard dividend payers. These are sensible businesses with just an excellent growth trajectory.”
He told FTAdviser it was “always challenging” to launch new funds but that it was particularly tough to launch a UK fund when “flows into the UK market” had “not been good”.
Concerns have also been raised this year that dividend payouts, which investors use for income, were too concentrated in a small number of companies and therefore a string of dividend cuts could have a large impact on income from funds.
But Mr McVey said he was not worried about dividend concentration in the larger companies or liquidity issues in the smaller stocks.
He said the mid-cap approach mitigated this risk, noting every single stock in the portfolio paid a dividend and the fund was therefore balanced against dividend concentration in larger firms.
Liquidity issues have also hit the headlines this year, most notably with the suspension of Neil Woodford’s Equity Income fund and more recently M&G’s now-gated property fund.
As the Octopus fund is a mid-cap portfolio there will be some smaller companies within its holdings, and these typically have less liquidity.
Mr McVey said: “We’re very conscious of liquidity in that part of the market but we’re looking for good companies and we always take liquidity into account. We have been doing this for a long time.”
imogen.tew@ft.com
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