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The Holdings Of The UK’s Best Performing Income Fund May Surprise You

The chances are that you have not invested a single penny in the UK’s top-performing equity income fund this year.

And no, I’m not talking about Neil Woodford‘s Invesco funds, I’m talking about Unicorn UK Income.

Indeed, during the past 12 months the £700m fund, has returned a staggering 28%, easily beating its benchmark, IMA UK Equity Income Index which only returned 13% over the period.

So, what is the key to this market beating funds success? 

The secret to success

Unfortunately, with over 40 shares within the fund’s portfolio, it’s not possible to analyse all of the fund’s holdings at once but here are five of the top ten.

Unicorn’s top holding, accounting for 5.2% of the total fund, is Cineworld Group (LSE: CINE). With a current dividend yield of 3.2%, Cineworld’s dividend payout is nothing to get excited about but the company’s growth is.

Cineworld reported a pre-tax profit of £30.4m for 2010 but the company’s pre-tax profit is expected to hit £64m this year and then £78 million by 2015. That’s a compounded annual growth rate of around 21%. Further, Cineworld’s dividend payout is covered two-and-a-half times by earnings per share and the company’s yield is forecast to hit 4% by 2015.

The next two holdings, accounting for 8.7% of the fund’s total, are Premier Farnell (LSE: PFL) and Berendsen (LSE: BRSN).

Premier Farnell distributes technology products including the Raspberry Pi, one of the world’s smallest and most adaptable computers and the company’s earnings have expanded at around 10% per annum for the past five years. At present levels the company’s dividend yield stands at 4.9%, although according to my figures, Premier’s dividend payout has remained constant for the past four years, which is disappointing by the yield of 4.9% is nothing to complain about. 

In comparison, Berendsen has hiked its dividend payout 10% per annum for the past six years but the company’s dividend yield is only 2.8%, covered two-and-a-half times by earnings per share.

The fund’s fifth largest holding is RPC Group (LSE: RPC), a supplier of plastic packaging. Just like Cineworld, RPC is more of a growth company than dividend champion, however, the company’s surging earnings have underpinned solid payout growth during the past few years. 

For example, during the past five years RPC’s earnings per share have more than doubled and the company’s dividend payout has followed suit, rising from 7.4p per share to just under 15p. And RPC continues to look for growth opportunities. The company recently tapped the market for funds in order to acquired ACE Corporation, a China-based manufacturer of plastic components.

Lastly, Unicorn UK Income’s sixth largest holding is Interserve (LSE: IRV). Construction company Interserve is not a growth company and profits have been volatile during the past five years. Still, over the period the company’s dividend payout has expanded 23% and is currently covered twice by earnings. Interserve’s shares currently support a 3.3% dividend yield. 

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Rupert does not own any share mentioned within this article. The Motley Fool has recommended shares in RPC Group.