Unicorn UK Smaller Companies Fund research update

Richard Troue | Tue 24 February 2015

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One of the biggest boosts to consumers and businesses in 2015 should be the reduced costs associated with falling energy prices. While the price of a barrel of Brent crude oil has risen to almost $60, from below $50 just a few weeks ago, it was well over $100 a barrel in the middle of 2014.

Lower fuel and energy prices increase the amount consumers have to spend on other things. All else being equal it should also help increase company profits, as it lowers the cost of raw materials and transportation. This leaves more money available to reinvest to grow the business, increase wages, or pay dividends.

Simon Moon, manager of the Unicorn UK Smaller Companies Fund, believes the lower oil price will be of particular benefit to the UK and US economies. Of the higher risk smaller companies he has invested in, approximately 50% of their earnings are derived from the UK and 30% from the US. He is specifically targeting companies he believes are capable of benefiting from increasing consumer and business spending.

Pendragon and dotDigital are examples of companies he believes can capitalise on the more favourable outlook for UK consumers. The former is the UK's leading car retailer which recently announced a 36% increase in profits; and the latter is a digital marketing specialist which includes Ikea and Harley Davidson among its clients. Profits are forecast to grow by over 40% in the current year, according to Simon Moon.

Elsewhere, the manager is also targeting UK companies capable of benefitting from the 'reindustrialisation of America', as the improved economic outlook and lower energy prices encourage investment and spending.

An investment has been made in Somero, a world leader in automated precision placing and levelling of concrete. Around 60% of its revenues are generated from North America and profits are expected to grow approximately 80% for the year ending December 2014. Tyman, a supplier of building products to the door and window industry, also generates over 60% of earnings in North America. It has been added to the portfolio for its potential to benefit from increasing construction there.

Our view on this fund

Overall, Simon Moon seeks to invest in companies leading their field and generating recurring revenue, through long-term contracts for instance, which contribute to sustainable growth. He looks for experienced management teams and aims to invest at a reasonable price. The portfolio is concentrated, with just 30 holdings, meaning each can contribute significantly to performance, but it is higher risk.

Simon Moon took over as manager of this fund on 1 April 2013, having joined Unicorn in 2008. We like his approach and under his tenure the fund has performed well, with our analysis pointing to stock selection as the main contributor. Please remember this is only over a short period and past performance is not a guide to the future.

Performance of the Unicorn UK Smaller Companies Fund since Simon Moon took over

Past performance is not a guide to the future. Source Lipper IM 01/04/2013 to 02/02/2015

While we have been encouraged by the results so far we would like to see Simon Moon build up a longer track record before considering the fund for inclusion on the Wealth 150 list of our favourite funds across the major sectors.

Find out more about this fund including how to invest

Please read the key features/key investor information document in addition to the information above.