Rathbone Global Opportunities - October 2020 update

Joseph Hill | Fri 23 October 2020

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• James Thomson is an experienced fund manager who we believe is a talented stock picker
• Rathbones provide challenge and risk management, but allow Thomson the freedom to run the fund
• The fund has performed strongly over the long term, outperforming the index since 2003
• This fund features on our Wealth Shortlist of funds chosen by our analysts for their long-term performance potential

How it fits into a portfolio

Companies able to grow sales and profits rapidly are often trendsetters. The rewards are potentially significant. But it can be a more volatile way to invest if the high expectations placed on companies aren’t met. This growth-style fund could work well alongside others that focus on undervalued and out-of-favour companies. It could also be used to add global diversification to a portfolio, particularly for those that are positive on the prospects for US and technology companies.

Manager

It’s rare to find a manager who’s stayed with one fund their whole career. James Thomson is one of those. He took over Rathbone Global Opportunities in 2003, and it remains the only fund he’s managed and we think it fully reflects Thomson’s investment philosophy. Because of his many years of experience, Thomson’s invested in all 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 learned valuable lessons and has shaped the portfolio differently as a result.

Thomson has a small but stable team around him. He doesn’t have the same level of resources as managers from larger fund groups, so he relies a lot on external research. We generally prefer in-house research but his record suggests he’s making good use of it. We think Thomson is a talented stock picker with a strong long-term track record.

The fund is also co-managed by Sammy Dow. Dow has been co-manager of the fund for just over six years, having joined Rathbones from JP Morgan Cazenove in July 2014.

Process

As a global fund, the manager has the flexibility to look for companies anywhere in the world. He’s quite choosy where he looks though. He has the flexibility to invest in smaller companies and emerging markets which are higher-risk areas but he generally avoids these as he thinks they’re too risky compared to other areas.

Thomson invests in many companies shunned by others but where he sees the potential to grow over the long term. That might include companies considered boring, or ones that’ve done well for a few years and other investors think the best growth is behind them. Some of his investments appear far from shunned though, like trillion-dollar technology company Amazon. But Thomson invested in it several years ago, before it was popular, and stayed invested as it became an investor favourite.

We like that he invests differently to the global stock market, as it gives him the opportunity to beat it. As with any truly active fund manager though, it means there will also be times when he doesn’t do so well and there are no guarantees.

Thomson has taken the opportunity presented by depressed share prices over recent months to add to some of the fund’s investments. Commercial ovens producer Rational, uniform rental service Cintas and clothing retailer Next have been topped up despite gloomy market updates. The managers believe these are among the businesses whose earnings could experience something of a snapback in earnings.

Culture

As the fund is the only one that Thomson manages, he’s solely focused on it. He’s incentivised to focus on the longer rather than short-term performance of the fund. This aligns his 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.

We positively view 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 by aiming to be at the forefront of responsible investing. 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.

Cost

The fund’s available for an annual ongoing fund charge of 0.52% and we think it represents excellent value for a fund run by a talented manager. It’s normally offered at 0.78%, but there is a 0.26% saving for HL clients. The HL platform charge of up to 0.45% per year also applies.

Performance

James Thomson has a strong long term track record of investing across the globe. Since Thomson took over as manager of the fund in November 2003, he’s delivered a return of 775.3%* to investors. This compares favourably with the Global sector peer group and the FTSE World index which delivered returns of 327.5% and 395.1% respectively over the same period. Our analysis suggests that Thomson’s outperformance has been driven by his stock selection.

The fund has also performed well recently too. It aims to deliver a higher return than the IA Global sector peer group over any five year period. And over the most recent five year period it’s done the job, gaining 133.5% compared to 85.8% for the peer group average. Past performance isn’t a guide to the future.

Over the last year, Sartorius Stedim Biotech, semiconductor Company Nvidia, online grocer Ocado and Amazon have been among the most significant contributors to the fund’s performance. And over the last few months, the managers have seen some of the companies they own which would benefit from a reopening of the economy rise in value, despite rising Covid cases. That included the shares of Rational, Cintas and Next.

Not all of the funds investments have performed in the same way though. Jack Henry, the digital solutions provider for example, has suffered as its clients have delayed digital upgrades to conserve or direct resources elsewhere amid the impact of the coronavirus.

All investments fall as well as rise in value, so you could get back less than you invest.

Past performance isn't a guide to the future. Source: *Lipper IM to 30/09/2020.

Find out more about Rathbone Global Opportunities including charges

Rathbone Global Opportunities Key Investor Information