Rathbone Income – Value in the UK

• The managers look for cash generative companies with the potential to grow their dividend
• The consumer goods sector is the largest in the fund at 21.2%
• The fund has fallen behind the UK stock market in recent years

Our View

Carl Stick and Alan Dobbie, managers of Rathbone Income, look to invest in companies that are able to generate lots of cash and hopefully grow steadily into the future. These are the kind of companies that could have a good chance of growing their dividends in the future, with the potential to support the share price over the long run.

Stick and Dobbie target lowly valued businesses. Their share prices could rise further once more investors recognise their longer-term potential, or could better weather unexpected events, compared with those that are already highly valued.

Stick is an experienced investor in the UK stock market and has managed the fund since January 2000. He’s supported by Dobbie, who joined as co-manager in October 2018. The fund invests in a fairly small number of businesses, including smaller companies, and both of these factors add risk.

We think Stick is a good manager but this fund doesn’t feature on the Wealth 50 list of what we believe are the best funds in each sector. We currently have greater conviction in other UK equity income funds.

How’s the fund invested?

Stick and Dobbie consider the state of the wider economy when looking for companies to invest in. This is with the aim of identifying areas of potential future growth for both companies and sectors for years to come.

They're currently positive about the consumer goods sector, which is why it’s the biggest in the fund at 21.2%. Companies in this sector typically manufacture and sell goods to consumers and includes products such as clothing, beverages and tobacco. British American Tobacco and Reckitt Benckiser Group, for example, are currently held in the fund.

Other large investments include pharmaceutical and biotech giant GlaxoSmithKline and oil producers BP and Royal Dutch Shell.

The managers recently added to their investment in Jupiter Fund Management, an asset manager. They think its shares are attractively valued and that increased economic clarity could see Jupiter benefit as consumers become more comfortable with investing.

While most of the fund invests in UK companies, the managers have the flexibility to invest up to 20% of the fund in overseas businesses. 10.5% of the fund is currently invested overseas, which helps diversify the income paid.

How has the fund performed?

The fund has performed well over the long term and delivered greater returns than the FTSE All Share index. But the fund has fallen behind the broader UK stock market over the last few years. Our analysis suggests investments in the financials and industrials sectors have hurt performance. Please remember past performance isn’t a guide to the future.

The fund’s charges are taken from capital. This could boost the yield but reduce long-term growth potential.

Past performance is not a guide to the future. Source: Lipper IM to 30/11/2019

Outlook

The managers think the UK stock market looks good value. It hasn't performed as well as other global markets in recent years, partly because of political and economic uncertainty, yet some businesses continue to do well. This means their shares can be bought at a lower price than their growth potential suggests they should be.

Stick thinks a resolution to the political and economic uncertainty that has shrouded the UK in recent years could boost UK companies, by providing a more stable environment for earnings growth. He thinks greater clarity could be provided by the new Government, which could prompt foreign investors to increase their investment in the UK. This is something some of the larger holdings in the fund such as Aviva and Legal & General could benefit from.

Find out more about this Fund including charges

Key Investor Information