This time last year, Unicorn UK Income was £64m in size and at the turn of the year it had grown to £83m. At the last count, however, it had almost reached £440m. Miton has recently taken the decision to close its multi cap strategy – which includes the CF Miton UK Multi Cap Income fund and the Diverse Income Trust – at £500m.
Some analysts have suggested that Unicorn Income will soon have to do the same, but McClure has no plans to do so.
"We are running £500m if you include the Acorn Income trust, but I have no intention of closing the Unicorn UK Income fund yet. It is not a problem and we are able to maintain the same strategy," McClure said.
"Personally, I am very sanguine about the idea of soft-closing as I am acutely aware that if you do it, money can pour out from our clients. However, I am also aware that we may need to do it at some point," he added.
The fund has seen a huge amount of inflows recently after a year of strong performance boosted by its focus on mid and small caps.
On top of that, the fund has become available on more platforms such as Cofunds, Fundsnetwork and Skandia over the last few months.
Unicorn UK Income has performed very well over the long-, medium- and short-term. It has been the best-performing fund in the IMA UK Equity Income sector since its launch in May 2004, with returns of 236.64 per cent, more than 100 percentage points ahead of the returns of the FTSE All Share.
Performance of fund vs sector and index since May 2004
Source: FE Analytics
The fund also boasts being the best performing fund in the sector over three and five years, after it topped the sector tables in 2009, 2010 and 2012. On top of that, it sits firmly in the top quartile over one year.
Performance of fund vs sector and index over 1yr
Source: FE Analytics
Following Neil Woodford's announcement he will leave Invesco Perpetual in the coming months, money has started to come out of his funds, and Unicorn Income seems to be one of the beneficiaries – even though its focus on small and mid caps makes it very different.
Ben Willis, head of research at Whitechurch, says that McClure and his colleagues could struggle to replicate their performance if the fund grows much larger.
"Yes [the size] is a concern," he said. "We have just heard the Miton fund has been closed, which is a multi-cap income fund."
"Yes, Unicorn will say they can go into mid caps, but Gervais Williams feels they cannot run their strategy above £500m."
"They said they would soft-close the UK Income fund at £600m, now they are talking about looking at it between £750m to £1bn. I’m sorry, but that is going to compromise things. It will mean they will end up holding larger companies for liquidity reasons or even stocks they don’t really like."
"I’m not saying they are being greedy, but they are being greedy."
"They may say something different, but that fund was going a long time without any money in it and now it has grown substantially," he added.
McClure says he never intended to close at £600m, just to review the fund size, and he still intends to do so. He says that although he isn’t considering soft-closing it yet, he won't allow it to become so big that it will affect his style. "When I feel uncomfortable about the size of the fund, I will meet with the directors and the board. However, I will have the final say," he explained.
"We are not there yet, as at £440m I am comfortable. I don’t need to smash and grab about soft-closure to investors, I don’t have to start rushing in. We check the capacity of all our funds here at Unicorn and work out what size they can get to," he added.
Although the manager says investors shouldn’t worry that his style will change because of the size of the fund, he admits there will be a few causalities because of the inflows.
"It was £40m in October last year and this morning it was £440m. Our smallest holding is Dillistone, as it has a market cap of just £15m."
"I don’t think we will be able to replicate that and we will have to start moving slightly up from that sort of size."
"However, we will not move into the FTSE 100, we are not changing the fund’s strategy," he added.
On top of that, the manager says that the major reason why his fund and other similar portfolios in the sector have seen such large inflows is because the more mainstream UK equity income funds are not good enough, a view he expressed in a recent FE Trustnet article.
He says he really admires the likes of Gervais Williams and his team at Miton, the Chelverton UK Equity Income fund and Thomas Moore’s Standard Life UK Equity Income Unconstrained fund, as they are all trying to do something different.
Unicorn UK Income has an ongoing charges figure (OCF) of 1.57 per cent and requires a minimum investment of £2,500.
For anyone interested in other Unicorn funds, FE Trustnet looked at the group's range earlier today.
