McClure, who heads up the sector-leading Unicorn UK Income fund, says portfolios that rely on the performance of a handful of stocks to prop up their income yield are doing a disservice to their clients. "I’m still amazed at how skewed the sector is to five or six companies, which make up the biggest bulk of their yield," he said.
"The likes of Vodafone, HSBC, GlaxoSmithKline, Shell and BP account for around half of the total number of dividend payments in the UK. If one of these were to 'do a BP', investors would see their income payments suffer a massive blow."
"All it takes is a few bad results or something unforeseen."
McClure points to the lack of diversification among UK Equity Income funds, which tend to hold the same number of companies in their top-10 holdings.
"Quite often it’s just the top-10 companies jumbled up a bit, which doesn’t really present good value for money – you may as well hold a tracker," he explained.
"These large companies tend to be the highest yielders and if you look at their performance compared to the rest of the FTSE, they underperform when it comes to total return."
"We prefer to spread our income across the entire portfolio so that we can be more competitive for capital growth as well as income."
This strategy has worked wonders for McClure in recent years: according to FE data, Unicorn UK Income is the best-performing portfolio in IMA UK Equity Income over three- and five-year periods, with returns of 92.07 and 28.58 per cent respectively.
Performance of fund vs sector and benchmark over 10-yrs
| Name |
1-yr returns (%) |
3-yr returns (%) | 5-yr returns (%) | 10-yr returns (%) |
| Unicorn - UK Income |
0.34 |
92.07 |
28.58 |
N/A |
| FTSE All Share |
-2.13 |
44.39 |
2.45 |
66.16 |
| IMA UK Equity Income |
0.39 |
40.24 |
-3.75 |
60.48 |
Source: FE Analytics
In spite of the fund’s smaller cap bias, it is only marginally more volatile than its sector average.
The portfolio is slowly but surely attracting interest from UK investors, with assets under management (AUM) growing from only £5m in October 2010 to £42.9m at the beginning of May.
"I’ve got a great deal of respect for someone like Neil Woodford, who is very much his own man and doesn’t listen to market noise," added McClure.
"However, we like to do things a little bit differently. If you’re holding three or four UK Equity Income funds, there’s no point in going for the biggest players because they’re so evenly matched."
"And, of course, there is also the issue of dividend risk."
Unicorn UK Income currently has a one-year historic yield of 4.5 per cent, which is just over average for the UK Equity Income sector.
McClure says the vast majority of his holdings have a yield of between 4 and 6.5 per cent, with a small/mid cap bias.
"We’re always cautious of holding a company yielding more than this," he continued.
"These companies are high yielders for a reason. However, we do have a couple yielding 8 per cent, but these stocks have no debt on their balance sheets and have a relatively small weighting."
The manager names the five-crown rated PFS Chelverton UK Equity Income portfolio, as well as the newly launched Marlborough Multi Cap Income and MFM Slater Income funds, as his biggest competitors in the multi-cap income space.