Standard Life Equity Income Trust, JOHCM UK Dynamic and Unicorn UK Income could be potential opportunities for those looking for alternatives after the soft-closure of the five FE Crown-rated Majedie UK Income fund. 
Majedie UK Income, which has been managed by FE Alpha Manager Chris Reid since launch, has been one of the standout performers of the IA UK Equity Income sector in recent years thanks to a high conviction portfolio positioned for both income and capital appreciation.
Since inception in December 2011, the fund has been the fifth highest returning member of its peer group with a 102.90 per cent return. FE Analytics also shows it’s top quartile when it comes to metrics such as alpha generation, maximum drawdown, Sharpe ratio and maximum gain over this period.
Performance of trust vs sector and index since launch
Source: FE Analytics
However, Majedie today announced that it would be limiting inflows into the fund as the strategy has now reached its £1.5bn capacity. Existing investors will be able to add to their mandates on request, but the boutique will no longer be seeking new client relationships.
Rob Harris, chief executive of Majedie, said: “For over a decade we have committed to limiting capacity in our various strategies to allow for unconstrained decision making and to protect performance, which can suffer when funds grow too large. It is of course a tribute to the UK Income team’s hard work that the fund has attracted such strong investor support and they can now concentrate on continuing to deliver for existing clients.”
There’s no suggestion that otherwise happy investors should sell their holdings in the fund. But for those who were too late to establish a position in Majedie UK Income or want a similar approach, we highlight three possible alternatives in the article below.
For those concerned by capacity - Standard Life Equity Income Trust
Rob Morgan, pensions and investment analyst at Charles Stanley Direct, says a closed-ended fund is likely to be appropriate for investors who pay attention to capacity, as the structure means the size of a portfolio cannot be inflated by inflows.
He opts for the £185m Standard Life Equity Income Trust, which has been managed by Thomas Moore since November 2011. Morgan says Moore is an up-and-coming manager, whose unconstrained approach could sit well with fans of Majedies’s fund.
“Moore is an all-cap manager and is perfectly happy to look further down the market-cap scale – in fact his philosophy is that mid-cap names is where a lot of the dividend growth is going to come from,” the analyst said.
“A strategy like this is about the dividend growers, rather than the companies that are yielding the most at the moment. This isn’t too far away from the philosophy of the Majedie fund.”
Performance of trust vs sector and index under Moore
Source: FE Analytics
As the above graph shows, Standard Life Equity Income Trust’s 99.93 per cent total return under Moore far exceeds the gains seen in the IT UK Equity Income sector and its FTSE All Share benchmark. The fund is ranked second out of 24 trusts in its peer group over this time.
The manager’s approach pays little regard to the composition of its benchmark, making it somewhat similar to Majedie UK Income. Its top holdings include BT, DS Smith, Aviva, Vodafone and Legal & General.
Standard Life Equity Income Trust has ongoing charges of 0.95 per cent, is 7 per cent geared and is trading on a 0.65 per cent premium to net asset value. It is yielding 3.22 per cent.
For a recovery style - JOHCM UK Dynamic
One differentiating feature of Majedie UK Income is the fact that Reid tends to prefer stocks that unloved by the market but are going through a positive transformation and have the ability to pay out a dividend.
A fund with a similar approach but one that does not reside in the IA UK Equity Income sector is JOHCM UK Dynamic, headed up by FE Alpha Manager Alex Savvides.
The £333.2m fund holds five FE Crowns and has a place on the FE Invest Approved list. On its investment approach, FE Research said: “JOHCM UK Dynamic invests in the stocks of distressed businesses that have identified their problems and are in the process of solving them.”
“The fund managers believe companies they pick are overlooked by the market because it is focused on short-term performance; however, if those businesses have identified their problems and have a strategy to tackle them, they are on their way to recovery and the market will soon revalue them.”
“They choose dividend-paying firms whose actions are focused on repairing cash-flow generation, because it imposes discipline on their management teams.”
Performance of trust vs sector and index since launch
Source: FE Analytics
The 114 per cent total return that the fund has made since launch puts it in the IA UK All Companies sector’s top decile; it’s also beaten the average IA UK Equity Income fund and the FTSE All Share over this time.
However, it does have more exposure to the FTSE 100 than the Majedie portfolio and counts the likes of Royal Dutch Shell, HSBC, BP, AstraZeneca and Barclays.
JOHCM UK Dynamic has a clean ongoing charges figure of 0.87 per cent, but levies a performance fee, and yields 3.42 per cent.
For those who like boutiques - Unicorn UK Income
Meera Hearnden, senior investment manager at Parmenion Capital Partners, says this five FE Crown-rated fund, which is managed by Fraser Mackersie and Simon Moon, could be “an excellent alternative” to the Majedie fund.
“This might appear an unusual choice as the fund was taken over by its new managers less than two years ago, but the fund managers have been integral to the management of the fund for some years before taking over as lead managers,” she said.
“Unicorn is a small niche boutique firm, like Majedie, and the fund has a bias towards the mid and small-cap stocks, just like the Majedie fund. It has a disciplined approach which is very bottom up focused. What’s more, it has delivered similar performance with significantly less volatility than Majedie, which suggests its risk-adjusted returns have been superior.”
Performance of trust vs sector and index since launch
Source: FE Analytics
Over five years – during the bulk of which Mackersie and Moon worked alongside former manager John McClure – Unicorn UK Income has significantly outperformed its average peer (in fact it’s the highest returning member of the sector) and the FTSE All Share with a close to 110 per cent total return.
That’s thanks to having more than three-quarters of its assets in small and micro-cap stocks. However, as Hearnden notes, this has not resulted in excessive risk; it’s first quartile over five years for annualised volatility and has the sector’s highest Sharpe ratio, which measures risk-adjusted returns.
Unicorn UK Income has a 0.81 per cent clean OCF and yields 3.58 per cent.
