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Unicorn UK Smaller Companies
This is a very high conviction UK smaller companies fund with around 40 holdings. Its manager focuses on company fundamentals and aims to make long-term investments, while avoiding low quality, cash-burning businesses.
Our opinion
Unicorn UK Smaller Companies is a small, flexible fund with a solid investment process and a highly competent team. We like the focus on company fundamentals and understanding businesses in detail. The fund is also quite concentrated, which allows it to capture the performance from its best ideas. We are confident the fund can continue to do well in the future.
Company description
Founded in 2000, Unicorn is an independent boutique asset management business that specialises in UK smaller companies. It offers funds, investment trusts and AIM venture capital trusts. It is majority-owned by the directors and management, adding incentive to ensure client and director interests align. Unicorn topped the 2016 FundCalibre Fund Management Equity Index, after delivering outstanding outperformance for their investors, and was awarded the Elite Provider for Equities rating in 2015, 2016, 2017, 2018 and 2020.
Fund manager
Prior to joining Unicorn in 2008, manager Simon Moon worked as a research analyst for JM Finn & Co. Before that, he spent three years on the NHS graduate finance team. Simon became lead manager of the UK Smaller Companies fund in March 2013. He is a qualified chartered accountant. Alex Game was appointed assistant fund manager in April 2021, having joined Unicorn in 2014 after two years at Stanhope Capital. Alex is also Unicorn's ESG officer.
Smaller company investing is fascinating; the real opportunity and intrigue lies in uncovering some truly hidden gems at the lower end of the market cap spectrum.
Simon MoonFund manager
Investment process
Unicorn UK Smaller Companies fund prioritises individual stock selection rather than positioning the portfolio for a particular macroeconomic view. The investment process begins with a number of quantitative screens for profitability, debt levels and analyst coverage. The fund avoids companies in the oil and gas, mining and biotech sectors. All companies must be profitable at the point of investment. The team looks for stocks with lasting competitive advantages, experienced management teams and strong balance sheets. A large proportion of research is performed in-house - this allows Unicorn to identify companies often missed by brokers. Regular company meetings are key and it is very rare that an investment is made in a stock without a face-to-face meeting. The portfolio has a low turnover, and stocks are purchased with long-term investment horizons.
ESG
ESG - Integrated
Unicorn integrates ESG factors into its investment process. The stock selection process removes sectors which are deemed to have negative ESG practices, such as resources, tobacco, gambling and doorstep lending. The team then uses an ESG assessment tool prior to the stock being added, which evaluates the policies and controls in place at a company, the ESG targets and trends. Any significant controversies during this assessment would result in the company not qualifying for inclusion in the portfolio. Any minor controversies are noted as a potential topic for engagement and further explanation may then be sought from the management team.
The investment team encourages company management teams to adopt ESG KPI’s (key performance indicators), which then become an agenda item to discuss at regular company management meetings. The stock selection process is underpinned by the Unicorn Asset Management Responsible Investment Policy, which prohibits investment in controversial weapons.
Risk
The concentrated nature of the Unicorn UK Smaller Companies fund does open it up to some stock specific risk. However, this is mitigated by the team's conservative and disciplined investment approach, which avoids loss-making and heavily indebted companies. Individual holdings are typically limited to a 5% position in the portfolio, which reduces the risk of one large holding hurting the fund's performance.
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The information, data, analyses, and opinions contained herein (1) include the proprietary information of FundCalibre, (2) may not be copied or redistributed without prior permission, (3) do not constitute investment advice offered by FundCalibre, (4) are provided solely for informational purposes and therefore are not an offer to buy or sell a fund, and (5) are not warranted to be correct, complete, or accurate. FundCalibre shall not be responsible for any trading decisions, damages, or other losses resulting from, or related to, this information, data, analyses, or opinions or their use. The Elite Fund rating is subjective in nature and reflects FundCalibre’s current expectations of future events/behaviour as they relate to a particular fund. Because such events/behaviour may turn out to be different than expected, FundCalibre does not guarantee that a fund will perform in line with its FundCalibre benchmark. Likewise, the Elite Fund rating should not be seen as any sort of guarantee or assessment of the creditworthiness of a fund nor of its underlying securities and should not be used as the sole basis for making any investment decision. FundCalibre disclaims any responsibility for trading decisions, damages or other losses resulting from any use of the Elite Fund rating. All performance data, as well as fund size, OCF, AMC, annual income (historic), share price discount or premium, is sourced directly from FE Analytics, and will change periodically.