Rathbone Income - a flexible income fund
Richard Troue | Mon 23 April 2018
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- 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.