Rathbone riding out the crash by putting faith in the long term

Published on Friday 3 July 2009 20:41

FUND managers can be excused for blaming their woes on the collapse in the wider markets last year, but Carl Stick is honest enough to confess that he failed to adapt as he should have.

Stick, the highly regarded manager of the 485 million Rathbone Income fund, oversaw a 27 per cent loss in the year to the end of May, despite a 9 per cent rebound in the last six months.

He typically keeps stocks in the portfolio for the long term, but admitted that the volatility was such that last year, the fund would have been better off if he had offloaded some companies earlier.

"We should have been more aggressive in taking profits and been more robust in the way we trade," Stick said.

The fund held holdings in some sectors for too long, he said, most notably stocks such as Cattles, in the specialist financials sector, and Paragon, in the property sector, where the credit crunch wreaked havoc with business models.

"Even when we are looking at a good company, we now try to envisage any scenario where its business model could be destroyed."

Performance has improved dramatically this year, however, Stick said investors who recognise the fund's long-term focus have benefited from their patience.

"Our premise is that a good income fund focuses on true, tangible returns from companies, giving investors inflation-proofing and total returns," said Stick.

Around 40 per cent of the fund is invested in small and medium-sized companies, with a fresh focus on those without significant debts.

"If a company is highly leveraged and things go wrong it can be hit hugely," he said. "Companies won't be as highly leveraged in the medium term as they were two years ago. If they are they won't be valued the same as they would have been."

More than ever, Stick is focusing on companies with good balance sheets that are competitively strong and where dividends are safe, with no worries over debts.

A good example is a small printing business called Domino, which is involved in technical printing on consumer products.

Stick explained: "In the last 20 years it has very rarely had to resort to long-term debt funding. It grows without needing debt and yields 7 per cent a year, so it makes a lot of sense."

The fund may be recovering strongly, but its manager believes the rebound in the wider economy will take longer to develop, despite increased optimism in recent weeks.

"My gut feeling is that we're getting too excited about a recovery," Stick said. "It will happen but it's more likely to be in 2010 and then it will be a slow, bumbling recovery. The optimism is based on the belief in a V-shaped recovery but I don't think we can return to where we were."

&#149 The Rathbone Income is available as an Isa and a regular savings plan. For more details visit www.rutm.com or call 020 7399 0399.