The next stage sees each stock researched thoroughly when building a case for investment.
This entails the creation of a conviction score where each company is evaluated on six individual factors.
These are: management and shareholder structure; the company’s strategy and how it links to long-term value generation; market opportunity, such as the potential for international expansion or product development; market position and business model, such as whether its competitive advantages are sustainable; operational and financial performance; and valuation and liquidity.
Higher conviction scores typically command a higher portfolio weighting when reaching the portfolio construction and risk management stage.
Price targets, changes to the investment case and the portfolio aggregation model are also monitored, with significant changes potentially triggering a sale.
The fund typically holds between 40 and 70 positions.
You only have to look at the list of stocks to see the income diversification.
The top holding is energy procurement consultant Inspired Energy (4.4 per cent), with the likes of ten-pin bowling operator Ten Entertainment (4.1 per cent) and designer, manufacturer and supplier of Kettle safety controls Strix Group (3.5 per cent) – all among the largest holdings.
This fund has a strong process and benefits from Ken's unrivalled expertise in the small-cap space.
It is one that all investors looking for income in the UK should consider at a time when diversification of returns has never been more important.