Rathbone Global Opportunities: October 2021 Update

• James Thomson has managed the fund since 2003 and established a clear and effective process
• The fund’s investments in technology has reduced considerably over the past year
• Long-term performance has been strong, and we put this down to his stock picking skills
• This fund is on our Wealth Shortlist of funds chosen by our analysts for their long-term performance potential

How it fits in a portfolio

Rathbone Global Opportunities aims to grow your investment over the long term by investing in companies from around the globe. The managers focus primarily on developed markets like the US, UK and Europe. Larger companies make up the majority of the fund, but the managers use their flexibility to invest in higher-risk small and medium-sized companies too. The fund’s focus on growth means it could be a useful addition to an adventurous portfolio. It could also complement other funds investing in emerging markets or unloved value companies.

Manager

James Thomson has been lead manager of the fund since November 2003 but his involvement with the fund dates back to its launch in 2001. Unlike many in the industry, he’s spent his entire management career working on this one fund. It receives his full attention and we believe it fully reflects his investment philosophy. Over the past 17 years he’s navigated the fund through a wide range of market conditions, including through the pain of the financial crisis. Although he didn’t come out unscathed, we think he came away from the experience a better manager. He learnt valuable lessons and has shaped the portfolio differently as a result.

Thomson is supported by deputy manager, Sammy Dow, who joined Rathbones from JP Morgan Cazenove in July 2014. Up until that point his experience was primarily in equity sales, but he’s taken well to life as a fund manager and has a great mentor in Thomson. Since November 2018 he’s also managed another fund investing globally for institutional clients.

The duo has access to internal analysts at Rathbones, but they prefer to use a combination of both in-house and external research. Thomson’s performance to date suggests it works to good effect. We believe he’s a skilled stock picker with one of the best track records in the IA Global sector although past performance is not a guide to the future.

Process

Thomson and Dow are looking to invest in companies they consider to be under the radar or those that have been shunned by other investors but still have potential to grow over the long term. Rather than using extensive quantitative tools, the managers use a combination of their experience and internal and external analysts to generate ideas. This helps build a 360 degree view of the company through a range of different lenses.

Detailed company analysis (bottom-up) is conducted to assess whether they have the ingredients for what Thomson calls ‘the secret sauce’ – a nod to his American heritage. Typically, these companies should be easy to understand with hard-to-replicate advantages and have the ability to increase their customer base over time. In contrast, they have tended to steer clear of highly indebted companies and those whose fate is tied to the health of the wider economy. Equally, they have favoured those with unblemished pasts, rather than companies who are waiting for some sort of catalyst to recover.

Meetings with company management also plays a big role, that’s why they conduct around 200 meetings every year. They prefer visionary and flexible management teams who under promise and over deliver. The majority of these meetings are conducted virtually. This is likely to remain the case going forward, but the managers plan to combine these with annual in-person meetings too.

This process whittles down a universe of over 2,600 to a portfolio of around 60 companies. Over the past year there have been some significant changes to how the fund is shaped. For example, the technology sector has been reduced from 28.8% to 19.6% (12 months to the end of September 2021) with companies such as Netflix, RingCentral and Delivery Hero being sold to make way for those likely to benefit from economic re-opening. New investments over this period include healthcare company Intuitive Surgical which produces less invasive products for surgical procedures. It reduces costs, patient recovery times and is less exhausting for the user which enables more surgeries to be conducted per day. Other new investments include machinery manufacturing company Deere & Company and freight transporter J. B. Hunt.

Thomson has tended to avoid higher-risk emerging market companies apart from Chinese technology giant Tencent. He first invested in 2010 but he’s recently sold it due to increased regulation casting doubts on the region. He continues to believe it’s one of the most innovative companies in the world but the gradual build up of events has reduced his conviction. However he still continues to hold the flexibility to invest in these markets should he see fit.

Culture

We have a positive view of Rathbones as a parent company. Having been founded in 1742 it’s got plenty of history and tradition behind it. But the company’s also moving with the times with an increased focus on responsible investment. Importantly for the fund, the company allows Thomson the freedom to run it his way without imposing any ‘house views’ on him, although of course challenge and risk management is provided.

The managers are a tight-knit duo which we believe plays to their strengths and operate in an environment where challenge and debate are encouraged. They’re incentivised to focus on the longer rather than short-term performance of the fund. This aligns interests with long-term investors, which we think is a good thing.

Corporate governance is important to the manager. Sometimes he’ll avoid a company if he thinks it’s not responsibly run. It’s also a big reason why Thomson doesn’t invest much in emerging markets, where he thinks corporate governance standards can be weaker.

Cost

The fund usually has an annual ongoing charge of 0.77%, but we’ve negotiated a 0.26% saving so it’s available to HL clients for 0.51%. This is one of the lowest charges among actively-managed global funds and we think it represents excellent value for Thomson’s best ideas. The HL platform fee of up to 0.45% per year also applies.

Performance

Since Thomson started managing the fund in November 2003, he’s delivered some outstanding performance. Over this period, he’s returned 1014.5%* vs 515.0% for the FTSE World Index. He’s also outperformed the IA Global sector average by quite some margin. While the manager’s growth style has contributed to his outperformance, our analysis suggests his stock selection has been the primary driver of returns, especially within sectors like financials, industrials and healthcare. As always, past performance is not a guide to future returns and there will times the fund falls in value, so you could get back less than you invest.

It’s rare to find a manager who can outperform when markets are both rising and falling. Thomson’s focus on companies with defensive characteristics but also strong growth potential has enabled him to achieve this over the longer term. Going forward we would expect this return profile to continue, although this is not guaranteed.

More recently though the fund has had a slightly tougher time, though it’s still delivered some strong returns. Over the past 12 months it’s grown by 19.6%. This is lower than the IA peer group and the FTSE World index which delivered returns of 23.9% and 24.0% respectively over the same period. The fund’s consumer facing companies were among the biggest laggards.

Some of the best recent performers include German healthcare equipment company Sartorius. The recent announcement of booster jabs was good news for its share price given the company’s involvement with the Covid-19 vaccine. Another strong performer was Intuit, the US software company, which has benefitted from high demand for its accounting systems. Other notable performers include US technology conglomerate Alphabet and IDEXX, manufacturers of veterinary diagnostic equipment.

Annual percentage growth

**I Acc share class used to extend performance history. The standard unit class available through HL is Class S.

Past performance isn't a guide to the future. Source: *Lipper IM to 30/09/2021.

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