A low-yielding bond environment is making many fixed interest investors turn to equity income instead. However Standard Life’s Moore warns that investors need to branch away from stalwart sectors such as pharmaceuticals and tobacco. "Equity income doesn’t need to be dull, stodgy companies," he said. "The fund I manage doesn’t have any exposure to pharmaceuticals and tobacco and that’s not because I’m trying to be different."
"Virtually every other fund in the sector has those two in significant sizes. I’m surprised that all these other fund managers see so much value in them."
"Those sectors are seeing significant headwinds. In the case of pharmaceuticals, the headwinds are coming from government spending coming down, so pricing is coming under pressure."
"Tobacco companies are coming under pressure because of regulation. Also volumes are coming under pressure because of the eurozone crisis."
"My question would be, how dependable are these sectors? The fund managers who hold them will argue that these are highly dependable. I would argue the opposite."
"If we’re right with that thesis then it’s going to have a huge impact on investors’ experience of investing in UK Equity Income as a sector. If they’re exposed to the wrong funds, they are going to suffer inferior returns in 2013."
The manager's views are in stark contrast to those of Aberdeen's Jamie Cumming, who said in a recent FE Trustnet article that investors should not be afraid of paying a premium for companies that have a proven track record of protecting against the downside.
Moore took over management of the Standard Life UK Equity Income Unconstrained portfolio in 2009 and has driven the portfolio into the top quartile of its sector over one and three years.
Over the longer period, it has returned 40.81 per cent compared with 30.49 per cent from the sector and 28.31 per cent from the FTSE All Share.
Performance of fund vs sector and index over 3-yrs
Source: FE Analytics
Among the fund’s top-10 holdings are discount airline easyJet and asset managers Legal & General and F&C Asset Management.
Moore also acknowledges Whitbread, which runs discount hotel operator Premier Inn, and Cineworld, for gaining market share in the UK.
"Even in an economy which is bumping along the bottom, you’re able to find really exciting ideas – not based on a growing economy and improving demand but actually based on supply contraction."
"These are relative winners and market-share gainers with strong balance sheets," he explained.
Moore says his turnover is higher than that of the typical income fund because the small size of the portfolio makes him able to respond more quickly to changes in market sentiment.
"The largest income funds, by their nature, are going to find it hard to shift their positions significantly from one year to the next. High turnover would be surprising given how large they are," he said.
With only £100m in assets under management, Moore's fund is more nimble than its larger rivals, he says, reacting more quickly to jolts in the market.
"I’m able to ensure that at any point the fund is exposed to our best ideas."
"The fund is top decile year-to-date and I’ve not achieved that by starting out at the beginning of the year with a portfolio and sticking rigidly to it."
"I’ve achieved this by managing the fund actively, which means that there will be higher turnover than funds that are unable to do that by their sheer size."
The fund requires a minimum investment of £1,000 and has a TER of 1.91 per cent.