The Saracen UK Income Fund will use a non-index approach to invest in a range of 30 to 45 stocks with a long-term investment horizon of five years. Exposure to small and medium sized companies will make up 70 per cent of the concentrated portfolio at launch.

Yield at launch will be 4.2 per cent, or around 115 per cent of that of the FTSE All Share index, the company said. The fund will initially charge a 0.5 per cent annual management charge on the first £50 million of assets raised across income and accumulation classes.

“While there is a proliferation of equity income funds, the Saracen UK Income Fund is marked out by its flexible approach, wholly unconstrained by index considerations,” said Saracen Fund Managers' chief executive, Graham Campbell.

“Its focus on mid- and small-cap companies makes it an excellent diversifier from other funds in the sector which might have a high exposure to the same FTSE 100 stocks. We anticipate constraining capacity on this fund to ensure it can remain true to this focus.” 

The fund will be led by Scott McKenzie, who joined Saracen Fund Managers in August as investment director.

“We believe there are significant opportunities in higher yielding medium and smaller companies: with ten large UK companies comprising more than 50 per cent of UK market dividends, we believe there are structural issues ahead for income investors,” said McKenzie.