WS Montanaro UK Income

WS Montanaro UK Income fund offers something very different from the standard UK equity income fund, given it focuses on small and medium-sized businesses. Each holding will also offer an attractive dividend yield or the potential for dividend growth. The fund's clear process and focus on research has worked consistently well over a very long period.

Previously LF Montanaro UK Income.

Our opinion

This fund has a clear philosophy and a detailed and robust process. Montanaro as a house is a small-cap specialist, and has an excellent long-term track record to prove it. The team is vast and experienced, which means it can produce its own high-quality research, rather than relying on external brokers. This also means managers are able to find opportunities often missed by others.

Fund manager

The fund is co-managed by Guido Dacie-Lombardo and Charles Montanaro. Guido joined Montanaro in October 2015 as an analyst after taking a sabbatical to travel – a passion shared by Charles who has even taken a holiday looking for undiscovered tribes in the Amazon. Prior to this, Guido spent six years at Rothschild where he developed an interest in analysing small and mid-sized companies. Whilst there, he advised clients on mergers and acquisitions, as well as a variety of corporate finance roles across industrial, renewable energy, utilities and business services industries. He joined Rothschild having completed a Masters degree in Experimental & Theoretical Physics.

Charles graduated from Durham University with a BA in Anthropology. He spent the first four years of his career in industry, before joining Merrill Lynch in 1980 as a private client broker in London. After working for a number of other companies, Charles founded Montanaro in August 1991. An industry veteran, Charles has grown his company from scratch to become one of the most respected small-cap asset managers in Europe.

When investing in small-cap, we stick to quality. That’s why we look for companies with sound business models, good management teams and strong balance sheets that can grow their earnings and dividends for many years.

Guido Dacie-LombardoFund manager

Investment process

The team starts with a simple philosophy; invest in companies you can understand, buy things which are growing, back quality management, engage with your companies and don't over trade. Wider macroeconomic factors are ignored. The team screens for companies using its own internal quality metrics. Valuations do not form part of this initial process but are considered at a later stage. The team the invests in simple understandable businesses for the long term and is unafraid of completely avoiding complex sectors such as biotech, miners, insurers or banks. Montanaro’s analysts conduct detailed fundamental analysis on every potential holding. Only after a company has passed a number of rigorous internal tests can it be added to the approved list for potential investment. The fund is invested almost entirely in quality mid and small-cap stocks listed in the UK, but up to 20% of the may be invested in companies quoted in the EU, Iceland, Norway or Switzerland.

ESG

ESG - Integrated  

ESG is embedded throughout the investment process at Montanaro. Once an idea has been identified, analysts will spend several days examining the business. They will complete a “Quality Checklist”, Montanaro’s Ethical & ESG checklist, and a financial model. Ethics is scored on pass or fail of revenue exposure to certain restricted areas. Individual scores are given for E,S and G categories out of 10. A final ESG Checklist score is then aggregated. Companies with scores of 5 or below are candidates for engagement. The ESG score plays a significant role in whether a business can be added to the "Approved List" by the Investment Committee.

Companies on the Approved List will be closely monitored by Montanaro’s Sustainability Committee for their ESG scores. This gives an indication of whether companies are improving in matters of ESG. Any points of concern will be noted and engagement with the company will follow. The Sustainability Committee will consider if businesses still continue to meet Montanaro’s ESG standards and are able to challenge the approval of businesses if they fail to do so.

Risk

WS Montanaro UK Income fund will typically hold between 40 and 50 stocks at any one time – all of which are given a risk score. The fund's focus on quality has historically helped provide some downside protection in falling markets versus other small-cap funds. It also avoids stocks on AIM (the alternative investment market) which are generally considered higher-risk than shares listed on the main UK stock market.

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