Rif citywire nma sept 2013
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Transcript of Rif citywire nma sept 2013
Risk in the Income World
Rathbone Income Fund
Citywire New Model Adviser Retreat
Brighton, September 2013
Carl Stick, Fund Manager
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Agenda
Introduction
What Does Equity Income Mean To Us?
A Risk Based Approach
Portfolio Construction
Historic Performance
Appendix
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A Little Bit About The Manager......
Fund Manager Carl Stick
Fund size £587.63m (mid-market value, as at 31.08.13)
“Best Income Wealth Manager 2013”
As Announced At The Financial Times, Investors Chronicle Awards
12 years of continuity, expertise and depth of the income team.
Second best performing manager in this sector over his tenure (to 31 August 2013).
Plays a key role in the development of Rathbone's investment process and business strategy.
‘Proven investment expertise’
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What Does Equity Income Mean To Us?
An equity vehicle, with long term investment aims:
Our input: Our investment process, a risk based approach – ‘winning without losing’.
Our output: Progressive distributions, generating strong total returns.
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Interim Final
‘Approximately 4.6% annual
outperformance’
‘A record of attractive and rising dividend increases in
19 out of the last 20 calendar years’
“The most powerful force in the universe is compound interest”
Albert Einstein
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A Risk Based Approach Investment process - summary
Screen investable universe Rank 5000 companies >$200m by ROIC and Earnings Yield
Risk
Management
Portfolio Construction
Quality Companies
High returns on capital.
Durable.
Balance sheet strength.
Understandable.
Honest and competent
management.
Focussed portfolio.
Low turnover.
Cash flexes with opportunity.
Value prices
Naturally contrarian.
Wide margin of safety.
Sell when:
Prices rise.
Fundamentals worsen.
Better opportunities emerge.
‘Our investment process is our competitive advantage’
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A Risk Based Approach
Principles
Risk is the threat of a permanent loss of capital.
Not volatility, illiquidity, deviation from a
benchmark, underperformance.
Process
Quality companies (low business & financial
risk) at value prices (low price risk).
Establish a margin of safety in case of bad
outcomes.
‘Winning without losing’
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A Risk Based Approach Case Study 1: Restaurant Group
High quality business, with robust, repeatable
business model. A classic cash flow and
compounding machine.
Top class, proven management.
Balance sheet is very strong, and potential for
future returns of excess capital to shareholders.
However, shares are assuming that the future
promises even greater returns on invested capital,
as management makes further investment in the
estate.
This may well be the case – we have every
confidence in the management – but there is little
margin of safety at the current price.
We are holders of the stock, but are very watchful
on price risk.
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1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 ∞
Cashflow Return on Capital (%) Cost of Capital (%)
Price
Business Financial
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A Risk Based Approach Case Study 2: Rio Tinto
The mining industry is a poor one, with a terrible
history of capital allocation decisions.
Rio Tinto is a prime example of this – $38bn write
down of Alcan acquisition.
Management change across the industry.
Furthermore, industry is also promising greater
discipline, although we will believe it when we see
it.
If capex is reined back, Rio becomes a very cash
generative business, but the shares are pricing in a
future of dire returns. Is that too pessimistic?
Business risk remains high, but price risk is low –
we have initiated positions.
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1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 ∞
Cashflow Return on Capital (%) Cost of Capital (%)
Price
Business Financial
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Portfolio Construction Diversification Of Risk Across The Portfolio
‘Differentiated stock list’
Source: Rathbones as at 31.08.13
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Historic Performance The Rathbone Income Fund
Source: Financial Express. Data as at 31.08.13 net income reinvested. R class units. *Data since January 2000.
Past performance should not be seen as an indication of future performance.
Performance (%) 6 months 1 year 3 years 5 years Mngrs
Tenure*
Rathbone Income Fund 10.87% 24.79% 60.13% 51.69% 216.20%
IMA UK Equity Income Sector 8.07% 21.61% 47.50% 48.09% 111.04%
Quartile 1 2 1 2 1
Rank 18/98 27/97 11/88 29/72 3/44
FTSE All Share Index 4.13% 18.90% 40.51% 42.62% 65.56%
‘Consistent outperformance…’
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Historic Performance Risk v Return
‘…Without higher volatility’
Three years
One year
Source: Financial Express. Data as at 31.08.13
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Th
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ear
cum
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erf
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Three year annualised volatility (%)
Sector Average
Rathbone Income Fund
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One y
ear
cum
ula
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erf
orm
ance (
%)
One year annualised volatility (%)
Sector Average
Rathbone Income Fund
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Summary
Risk based investment approach.
Diversified portfolio.
Consistent outperformance at lower volatility.
Proven investment management expertise.
‘Winning without losing’
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Appendix
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The Rathbone Income Team Biographies
Carl Stick
Fund Manager, Executive Director
Elizabeth Davis
Fund Manager and Quantitative Analyst
Alan Dobbie
Fund Manager
Kate Pettem
Investment Analyst
Carl is a Board Director of Rathbone Unit Trust
Management and plays a key role in the
development of Rathbone’s investment process.
He is the manager of the Rathbone Income
Fund, which he has been running since January
2000.
He is I.I.M.R. qualified and a Fellow of the
Securities Institute.
Elizabeth supports fund managers through
quantitative stock-screening and
fundamental research on companies. She
also profiles relative and absolute risk
analysis across the funds. She holds the
Investment Management Certificate and is a
CFA (Chartered Financial Analyst) charter-
holder.
In addition to working on the Rathbone Income
Fund, Alan is co-manager of the Rathbone Blue Chip
Income and Growth Fund. Alan specialises in Pan-
European equities, and has assisted in the
management of various institutional and retail funds
within Rathbone Unit Trust Management. Alan holds
the Investment Management Certificate and is a CFA
(Chartered Financial Analyst) charter-holder.
Kate works within the team as an investment analyst.
She joined Rathbones in September 2012, having
worked as a senior analyst at UBS. Originally from
Canada, Kate has over twenty five years of investment
experience, both as a fund manager and an analyst,
focussing for much of that time on North American
equities. A graduate of the University of Toronto, Kate
holds the Securities and Investment Institute,
Certificate of Securities and is a CFA (Chartered
Financial Analyst) charter-holder.
Siyuan Lin
Investment Analyst
Siyuan works within the team as a global
equity analyst. She joined Rathbones in April
2013 having worked as an Investment Trainee/
Research Analyst for three years in Martin
Currie’s Emerging Market team . She holds the
Investment Management Certificate and has
passed all three levels of the CFA (Chartered
Financial Analyst) exams, pending CFA
charter status.
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Appendix Rathbone Income Fund - Raw Volatility Data
Source: Bloomberg, data as at 31.08.2013
Portfolio StatisticsPortfolio
(3 Months)
Benchmark
(3 Months)
Portfolio
(6 Months)
Benchmark
(6 Months)
Portfolio
(YTD)
Benchmark
(YTD)
Portfolio
(3 Year(s)
Benchmark
(3 Year(s)
Return
Total Return 1.77 -0.77 11.28 4.18 19.81 13.33 65.58 40.72
Maximum Return 1.99 2.96 1.99 2.96 1.99 2.96 2.43 3.85
Minimum Return -2.25 -2.88 -2.25 -2.88 -2.25 -2.88 -3.05 -4.51
Mean Return (Annualised) 11.40 -2.78 35.77 13.51 47.15 31.55 27.65 19.44
Mean Excess Return (Annualised) 14.58 19.61 11.86 6.88
Risk
Standard Deviation (Annualised) 13.67 17.56 12.59 15.89 11.99 15.35 13.48 19.20
Downside Risk (Annualised) 10.26 12.59 9.48 11.67 9.04 11.38 9.96 13.89
Skewness -0.54 -0.10 -0.60 -0.26 -0.60 -0.31 -0.38 -0.22
VaR 95% (ex-post) -1.35 -1.44 -0.98 -1.37 -0.92 -1.35 -1.19 -1.64
Tracking Error (Annualised) 5.95 5.75 5.96 8.18
Risk/Return
Sharpe Ratio 0.78 -0.20 2.78 0.81 3.87 2.01 1.97 0.96
Jensen Alpha 13.29 25.47 23.93 14.54
Information Ratio 2.45 3.41 1.99 0.84
Treynor Measure 0.14 0.47 0.64 0.41
Beta (ex-post) 0.75 0.75 0.73 0.66
Correlation 0.96 0.94 0.93 0.93
Portfolio Info:
Portfolio: Rathbone Income Fund
Benchmark: FTSE All-Share Index
Currency: GBP
As of: 30/08/2013
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Historic performance Calendar year returns
Source: Financial Express, bid to bid, net income reinvested.
Calendar year performance: 2003 2004 2005 2006 2007
Rathbone Income Fund 23.71% 18.55% 23.31% 21.24% -2.80%
IMA UK Equity Income Sector 21.57% 16.00% 19.93% 18.19% -1.21%
Quartile 2 1 1 1 3
Rank 17/66 18/69 16/75 11/79 60/84
FTSE All-Share Index 20.86% 12.84% 22.04% 16.75% 5.32%
2008 2009 2010 2011 2012
Rathbone Income Fund -34.49% 23.48% 18.71% -0.15% 14.94%
IMA UK Equity Income Sector -28.54% 22.88% 14.58% -2.90% 14.01%
Quartile 4 2 1 2 2
Rank 78/88 34/89 15/102 28/100 43/98
FTSE All-Share Index -29.93% 30.12% 14.51% -3.46% 12.30%
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Top 20 Holdings Holding Weight
GlaxoSmithKline 5.66%
British American Tobacco 5.14%
Royal Dutch Shell B 4.31%
Rio Tinto 4.03%
BAE Systems 3.93%
Restaurant Group 3.56%
Unilever 3.54%
Scottish & Southern Energy 3.44%
Imperial Tobacco 3.35%
Cineworld 3.16%
Pearson 3.05%
William Hill 2.96%
Lockheed Martin 2.95%
Neopost 2.81%
Astrazeneca 2.81%
Headlam 2.80%
Tarsus Group 2.54%
Dechra Pharmaceuticals 2.43%
Diageo 2.42%
BG Group 2.39%
% of portfolio 67.28%
Source: Rathbones as at 31.08.13
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Important Information
The information contained in this presentation is for use by investment
advisers and is not intended for circulation to private clients or the general
public
Past performance should not be seen as an indication of future performance. The
value of investments and the income from them may go down as well as up and you
may not get back your original investment.
Rathbone Unit Trust Management is authorised and regulated by the Financial Conduct Authority and Rathbone Unit Trust Management is a
member of the IMA.
Rathbone Unit Trust Management Limited : Registered Address 1 Curzon Street, London, W1J 5FB
Registered No. 02376568 - A Member of the Rathbone Group.