Investors who rate Thomas Moore should turn to his Standard Life Equity Income Trust rather than his highly popular Standard Life UK Equity Income Unconstrained fund, given its wide 10 per cent discount to NAV, according to Ben Conway, fund manager at Hawksmoor Investment Management. 
The UK equity income space is littered with high profile managers who have built-up long and successful careers, such as Neil Woodford, Mark Barnett, Francis Brooke and Leigh Harrison, to name just a few.
However, over recent years a number of young up-and-coming managers have joined the sector and have gone on to outperform using a different investment approach compared with the “old guard” – one of whom is Thomas Moore (pictured) at Standard Life.
Moore took charge of the five crown-rated UK Equity Income Unconstrained fund in January 2009 from Dominic Byrne and thanks to the manager’s benchmark-agnostic, income growth and value-driven process, the portfolio has comfortably outperformed since.
According to FE Analytics, it is the IA UK Equity Income sector’s fourth-best performing portfolio over this time with returns of 203.81 per cent, beating the FTSE All Share by more than 90 percentage points.
Performance of fund versus sector and index since Jan 2009
Source: FE Analytics
Those returns have been consistent as well as, apart from the falling market of 2011, the now £850m fund has been a top quartile performer in every year since Moore has been at the helm; this includes in 2014’s turbulent conditions when the portfolio gained five times more than the FTSE All Share.
Source: FE Analytics
While some experts are sceptical of the fact the manager has yet to witness a 2008-style market meltdown during his career, Conway says he is one of the most exciting prospects for investors.
“It is the classic case of a good, young manager at a group where you would expect him to stay at for a long time. Standard Life has fantastic resources and Moore already has a decent pool of assets and he is still hungry to prove himself,” Conway said.
Square Mile, the investment research and consultancy firm, also rates Moore and his unconstrained dividend growth process highly.
While it too has concerns that Moore hasn’t yet had to deal with a severe downturn, the team has awarded his fund its A rating due to the manager’s track record, the fact the fund is genuinely multi-cap and because of his “thorough investment process”.
“We have a high regard for SLI's UK equity capabilities as well as Mr Moore's proficiency as a fund manager in his career so far,” Square Mile said.
“For investors looking for a truly actively managed UK equity income strategy which pays little attention to the underlying benchmark, then this strategy is most worthy of consideration.”
“Although he may not have as much experience as some of his more well-known UK equity income contemporaries, Moore appears passionate about this strategy and keen to validate both SLI's research process and his own abilities.”
However, while Conway rates the fund, he has been buying Moore’s Standard Life Equity Income Trust – which is almost completely the same as his open-ended portfolio – instead because it is now much better value.
While discounts have been historically tight over recent years, they have widened considerably across the closed-ended UK sectors in the past few months as investors have turned more “risk-off” due to growing macroeconomic concerns, higher valuations and fears over the election.
Moore’s trust is no different, as it is currently trading on a 10 per cent discount. Conway says that if investors like the manager, there has never been a better opportunity to buy into his process.
“The trust was trading at par or a premium for much of last year, but a discount has opened up recently and that is what is interesting,” Conway said. “If you like the manager and allocate to him, why buy the open-ended fund when you can buy his trust on a wide discount?”
He added: “You are effectively buying £1 worth of assets for 90p.”
Moore took charge of the Standard Life Equity Income Trust in November 2011, over which time it has comfortably outperformed the IT UK Equity Income sector and its FTSE All Share benchmark. As the graph below shows, its performance was very much in line with Moore’s open-ended fund up until recently.
Performance of trust versus fund, sector and index
Source: FE Analytics
Over the past year, for example, the trust has lost 1.73 per cent while the fund is up 9.1 per cent. However, that is due to its widening discount, as in NAV terms, Standard Life Equity Income Trust has returned 7 per cent over 12 months.
Data from the AIC shows the trust’s current 9.9 per cent discount is considerably wider than it’s one-and three-year averages and is the second widest in the whole 26-strong sector. It has also traded at a 2 per cent premium at points over the past 12 months.
There is a huge amount of overlap between the two portfolios as well, with BT, Legal & General, Vodafone, Close Brothers and Britvic featuring in both of their top 10 holdings. The sector weightings are also very similar, apart from the fund’s higher weighting to cash and the trust’s high weighting to financials.
The market cap weightings are very similar as well, though as the table below shows, the trust has less in the FTSE 100, which could well be due to the fact it is smaller than his fund.
Source: FE Analytics
Conway admits, though, that buying into Moore’s trust doesn’t come without risk.
He says that it isn’t the largest and therefore it isn’t very liquid. Also, given the uncertain outlook for the UK market and economy, he says there is always the chance that the discount may widen from here given its higher beta characteristics.
Nevertheless, due to its closed-ended nature and therefore ability to smooth its dividend (it has increased its payout in each of the last five years) and current yield of 3.4 per cent, Conway says now is a great time to buy the trust given that the global hunt for yield is ongoing.
Ewan Lovett-Turner, director of investment company research at Numis Securities, says that while the trust is less liquid than some of its peers, its current discount, above-average yield and the diversified nature of its income make it a good investment.
“I rate it highly and I think what is interesting about this trust is its all-cap approach, as Moore will look around the market for different sources of income,” Lovett-Turner said.
“It has, like other UK equity income trusts, seen its discount widen as most were trading at NAV or on a premium even at the start of this year. They have come off now, this one in particular, and I think that makes it very attractive at the moment.”
The Standard Life Equity Income Trust has gearing of 12 per cent and ongoing charges of 0.95 per cent.