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Rathbone Income - all change

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 managers look for businesses they expect to produce attractive levels of cash
  • They’ve used market moves to add to high conviction investments
  • Limiting risk remains a key objective

Our view

Carl Stick and Alan Dobbie pay close attention to how companies use their resources.

They want to invest in companies that generate lots of cash. It’s a popular investment strategy but Stick and Dobbie think they can find opportunities others have missed. They focus on how companies are implementing change and the effect this will have on returns. They’re looking for situations where they think other investors have misjudged a company’s future prospects.

The pair think avoiding losses when markets fall is one of the best ways to make money over the long term so they manage the fund defensively. This means investing in companies with good management teams, avoiding companies with too much debt and not paying too much for a company’s shares. They expect their strategy to provide some shelter when the market falls but it might not keep up with a rising market. The fund usually holds between 40 and 50 shares including smaller companies. This means each can make a meaningful contribution to returns but it’s a higher-risk approach.

Stick’s been managing the fund since 2000 and Dobbie recently joined him as the fund’s co-manager. We think Stick’s a good fund manager but the fund isn’t included on the Wealth 50 list of our favourite funds. There’s a number of talented UK Equity Income managers and we prefer other options in this sector.


Market moves over the last 12 months allowed the fund to show its defensive qualities. The UK stock market fell 10% in the second half of 2018 but the fund only fell 8.6%. Since the turn of the year, the UK stock market has posted strong gains. It’s up 12.4% while the fund’s gained 10.9% to 3 April 2018. It provided some shelter when markets fell, but didn’t make as much as the broader market when it recovered. Please bear in mind that past performance is not a guide to the future.

Stick’s long term record is good. Since he became manager of the fund it’s returned 341%* while the broader UK stock market’s returned 142%. He got off to a strong start. In his first years as manager he turned a profit in a period that the stock market lost money.

The fund’s charges are taken from capital. This results in a higher income but reduces the fund’s long-term growth potential.

Annual percentage growth
Apr 14 -
Apr 15
Apr 15 -
Apr 16
Apr 16 -
Apr 17
Apr 17 -
Apr 18
Apr 18 -
Apr 19
Rathbone Income 11.7% 0.5% 18.4% 0.6% 2.7%
FTSE All-Share 7.5% -5.7% 20.1% 8.2% 2.6%

Past performance is not a guide to the future. Source: Lipper IM* to 30/04/19

Risk at the right price

Part of a fund manager’s job is to make sure you’re getting enough return for the risks that you’re taking

The managers’ investment in Lloyds illustrates the point. They invest in the bank because they think it will benefit if interest rates increase. But they also recognise there’s a risk the Bank of England could raise rates too far too fast. This could make it difficult for borrowers to pay their debts which would be bad for banks.

When Lloyds’ shares were around 70p, the managers thought the price was too high for the risk attached to them at the time so they started reducing their holding. But as the shares fell to around 50p at the end of last year, they started buying more again.

Sticking with out-of-favour stocks

The managers take a long term approach to investing. They’re not constantly buying and selling investments which can increase trading costs.

The bulk of activity in 2019 has been adjusting the amount invested in existing holdings. Jupiter Fund Management had a difficult 2018 that saw its share price drop. However, the company has a new and respected CEO, runs some popular funds and doesn’t have any debt. Stick and Dobbie think the company’s prospects are good so they’ve been increasing their stake.

They’ve also been reducing their holding in information and analytics provider Relx. They still think it’s a good company but its share price has risen to the point that Stick and Dobbie think better returns can be earned elsewhere.


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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