Many investors will have first noticed the group through FE Alpha Manager John McClure’s five crown-rated Unicorn UK Income fund, which started the year with AUM of £83m and at the last count had seen that figure grow to £426m. The fund is getting a lot of attention as an alternative to Neil Woodford’s Invesco Perpetual Income and High Income funds following the manager's decision to walk out on the group.
However Morgan, a pensions and investment analyst at Charles Stanley Direct, says investors who like the UK Income fund should look at some of Unicorn's other products as they are run in a very similar way.
"Yes, their expertise is in smaller companies and their income fund has been the most popular fund as it does something different to others in the sector and has performed very well," Morgan said.
"However, if you like their income fund, then you are probably going to like all of their funds, as they are all run in a very similar way."
"They are very good stockpickers. Yes, they are smaller companies specialists, but that’s where you can outperform as it is an under-researched area of the market and Unicorn has been able to uncover value," he added.
Unicorn UK Income’s long-term track record has also contributed to its increased popularity: according to FE Analytics it is the best-performing fund in the IMA UK Equity Income sector since its launch in May 2004, with returns of 237.86 per cent.
Performance of fund vs sector and index since May 2004
Source: FE Analytics
Morgan is particularly fond of the Unicorn Free Spirit and Outstanding British Companies funds.
Both sit in the highly competitive IMA UK All Companies sector and invest across the market cap spectrum. The two portfolios are top-quartile performers over five and three years.
Performance of funds vs sector over 5yrs
Source: FE Analytics
The group's other funds are Unicorn UK Smaller Companies, the Unicorn Mastertrust and the closed-ended Unicorn AIM VCT and Acorn Income trust.
All of those portfolios are top-quartile performers in their respective sectors over five years, except for the UK Smaller Companies fund, which is in the second quartile.
Unicorn Mastertrust, AIM VCT and Acorn Income all sit in the top quartile of their sectors over one, three and 10 years as well.
Performance of funds over 10yrs
| Name | 1yr | 3yr | 5yr | 10yr |
|---|---|---|---|---|
| Unicorn Mastertrust | 28.52 | 40.96 | 143.06 | 158.76 |
| IMA Flexible Investment | 16.39 | 20.81 | 66.42 | 94.12 |
| Unicorn UK Smaller Companies | 49.65 | 72.22 | 191.92 | 159.51 |
| IMA UK Smaller Companies | 32.88 | 56.8 | 166.94 | 197.56 |
| Acorn Income | 63.62 | 162.2 | 447.7 | 481.94 |
| IT UK High Income | 37.09 | 59.69 | 146.45 | 212.75 |
| Unicorn AIM VCT | 49.06 | 41.58 | 214.65 | 154.49 |
| IT VCT AIM Quoted | 22.28 | 23.25 | 29.01 | -9.98 |
Source: FE Analytics
FE Alpha Manager Chris Hutchinson (pictured), who is a director at the company and the manager of the Unicorn Outstanding British Companies fund and the AIM VCT, says the close-knit nature of the business sets it apart from other groups.
"This is a small business that is independent and owner-managed. We all put our own money into the business and more importantly into our own funds," he said. "That means we have a vested interest in delivering good returns and minimising risk. Everything about the business is performance-driven and we don’t react to fads, as shown by the fact that we haven’t launched a fund in seven years," he added.
The managers only invest in companies that have a difficult-to-replicate product, a market niche, a good management team, are cash generative and are highly specialised. Then they remain invested for the long-term.
"We run high-conviction portfolios and we want businesses we can partner with over the long term, as that also cuts out the frictional cost of trading," he said.
The manager adds that he and his colleagues at Unicorn have quite an unusual way of selecting the stocks they hold.
Hutchinson says that as long-term investors, they are effectively looking for management teams they can partner with and whose companies can grow substantially over the next five years or so.
This is because they are looking for stocks that can move through their AIM VCT, to their UK Smaller Companies fund, then into Unicorn Free Spirit until they eventually end up in their Outstanding British Companies fund.
Hutchinson says this gives him and his fellow managers an advantage because they can invest in the smallest of companies and then get to know them inside out.
He says the classic example of a stock that has been held in all Unicorn's growth portfolios is Abcam, which is a biotech and life sciences company.
"They concentrate on therapeutic antibodies and protein research. They sell products globally to the pharmaceutical market for scientists looking for cures linked to the human genome," he explained.
"It came to the market in 2005 and it was only founded a few years before that. By the time they felt confident enough to list it had a market cap of £50m. It employed just 50 people and they were working out of a Cambridge science park."
"We were the only people to go and visit the business and we then invested £1.5m into Abcam via our VCT. We have taken capital gains in excess of £6m and are still running a position with a value of £9m."
"It has been part of the UK Smaller Companies and Free Spirit funds and is now in my Outstanding British Companies fund," he added.
Our data shows that since the now £1bn Abcam was listed in November 2005, it has returned 1,266.04 per cent. As a point of reference, the FTSE All Share has returned 75.05 per cent over this time.
Performance of stock vs index since Nov 2005
Source: FE Analytics
Morgan agrees that this long-term strategy gives Unicorn an advantage: "This does give them an edge. They find a company and then run with it, which is a great sign as they are not chopping and changing. That is what smaller companies investing is all about."
