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Rathbone Income - a flexible income fund

Richard Troue | Mon 23 April 2018

Investments can go down as well as up so there is always a danger that you could get back less than you invest. Nothing here is personalised advice, if unsure you should seek advice.
  • The UK stock market, and UK equity income funds, have been out of favour, but we don’t expect this to last forever
  • We like the manager’s flexible approach – he looks beyond the UK’s largest companies for opportunities
  • The fund currently yields 3.9% - variable and not an indication of future income

Our View

At its heart this is a traditional equity income fund. Carl Stick, the manager, looks for companies that can pay good dividends, grow them, and hopefully see their share price rise too. If this happens, he’ll take the profits and move on to the next opportunity.

Dig a little deeper and there’s more to it though. Whether it’s looking off the beaten track at smaller and medium-sized companies, investing overseas, or keeping the number of stocks relatively low to ensure each contributes significantly to performance, the net is cast wide to improve the chances of performing well. This is why we like the fund, although it does add risk.

We are happy to retain it on the Wealth 150 list of our favourite funds.

Performance review

It’s been a tough year or two for UK equity income funds. For a start, the UK stock market has been out of favour since the EU referendum in June 2016. In addition, lots of companies that income funds traditionally have exposure to, such as utilities, telecoms, and healthcare businesses, have struggled. Mining, oil & gas, and financials, where there is often less exposure, have done better.

Rathbone Income has also suffered from exposure to companies reliant on the UK economy and UK consumer, as these businesses have been hit particularly hard by the negative sentiment. Stock specific issues, such as profit warnings from Provident Financial, Saga, and Micro Focus, haven’t helped either.

The fund’s shorter term performance has suffered as a result. Despite this, it continues to rank among our favourites in the sector for long-term investment. We feel the negative sentiment towards the UK has been overdone and the long-term prospects for the economy and stock market are not as bad as many assume.

Carl Stick has an excellent track record. He has performed better than the broad UK stock market and the average fund in his peer group, the IA UK Equity Income Sector, since taking over management in January 2000. He has also delivered an attractive, growing income during his tenure. Please remember there are no guarantees past performance will be repeated.

Rathbone Income - performance under Carl Stick

Past performance is not a guide to the future. Source: Lipper IM to 31/03/2018

Annual percentage growth
Mar 2013 -
Mar 2014
Mar 2014 -
Mar 2015
Mar 2015 -
Mar 2016
Mar 2016 -
Mar 2017
Mar 2017 -
Mar 2018
Rathbone Income 13.8% 11.5% -0.1% 16.4% -5.0%
FTSE All-Share 8.8% 6.6% -3.9% 22.0% 1.2%
IA UK Equity Income 13.4% 7.8% -1.3% 14.9% 0.4%

Past performance is not a guide to the future. Source: Lipper IM to 31/03/2018

Annual income based on £10,000 invested in January 2000

Past performance is not a guide to the future. Source: Lipper IM & HL to 31/03/2018

Fund positioning

Different companies bring different qualities to the fund. Some, such as British American Tobacco, or US-listed Altria, might not offer significant growth potential but they have generated consistently good returns and dividends.

Others have great track records of steady growth. They might not always look exciting, but achieving modest growth year in year out can add up to impressive share price and dividend growth. Bunzl falls into this category, according to Carl Stick. It supplies companies worldwide with things essential to their business, from packaging and napkins for the food industry, to rubber gloves and ear defenders for the health and safety industries. As these are products businesses can’t do without, demand tends to grow steadily over time.

There are also companies in the fund that generate less consistent returns, but nonetheless make good investments at certain times. After a period of ultra-low interest rates, for example, it looks like the Bank of England might start to raise rates next month. Financial companies, especially banks, can benefit from this as they earn more interest on the money they lend. HSBC and Lloyds Banking Group feature in the fund.

The fund takes its charges from capital which can increase the yield, but reduces the potential for capital growth.

Please read the Key Features/ Key Investor Information in addition to the information above.

Find out more about this fund including how to invest

Important information - Please remember the value of investments, and any income from them, can fall as well as rise so you could get back less than you invest. This article is provided to help you make your own investment decisions, it is not advice. If you are unsure of the suitability of an investment for your circumstances please seek advice. No news or research item is a personal recommendation to deal.


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