Octopus income fund to launch underweight in tobacco and oil

Manager Chris McVey won’t be drawn on rationale for positioning

Octopus Investments has revealed plans to launch a UK Multi Cap Income fund as a sister fund to an existing growth strategy.

Targeting a yield of 4%, the fund will invest across the market-capitalisation spectrum from the FTSE 100 to small caps. The quoted companies team, led by Richard Power and already responsible for UK Micro Cap Growth, will managed the fund.

Just 10 stocks represent 54% of forecast FTSE 100 dividend payments for 2018, and almost three quarters of traditional income funds hold these stocks, Octopus said in a press release announcing the launch.

Octopus UK Micro Cap Growth performance

6m 3yr 5yr 10yr
FP Octopus UK Micro Cap Growth -4.00 54.83 61.78 262.21
IA UK Smaller Companies sector -10.83 31.25 53.40 354.51
Numis Smaller Companies + AIM Excluding Investment Companies -13.01 22.35 30.50 287.69
Source: FE Analytics


When the fund launches in December it will be underweight tobacco and oil, manager Chris McVey (pictured) told ESG Clarity‘s sister title, Portfolio Adviser.

“That’s just because we see better value elsewhere. We’re not saying we won’t buy these stocks at certain points in the cycle,” said McVey, who will be responsible for the day-to-day management and has two decades experience in small and mid-caps.

McVey would not be drawn on his rationale for the underweights. The portfolio at launch will hold an array of sectors, he said.

He continued: “We’ve identified a number of exciting companies across the market-cap spectrum to deliver this 4% and deliver dividend growth.” The fund aims to deliver predictable, growing dividends, paid on a quarterly basis.

A share class with a discounted annual management charge of 0.30% will be available during a limited offer period that opens on 26 November.


Tilney managing director Jason Hollands agreed the UK dividend pool is highly concentrated.

A number of existing UK equity income take a multi-cap approach, with relatively high exposure to mid-caps and smaller compared to the index, Hollands said. JO Hambro UK Equity Income, which is on Tilney’s buy-list, has 20.7% in smaller companies and 16.8% in mid-caps, for example.

“Clearly one has to be mindful of the pitfalls of funds prepared to own less liquid stocks and in the current environment where UK equities are somewhat unloved, this has proved challenging for those funds with particularly high small cap weightings,” he said.

Global dividend funds are another way investors can diversify their equity income exposure, he added.

Asked how the investment process would differ between the growth and income strategies, McVey said: “The investment processes are very similar. We are bottom-up investors, we will continue to utilise that approach and take it slightly up the cap scale.”

– This article first appeared on ESG Clarity‘s sister site, Portfolio Adviser.