It's a delicate balance between yield and stability

The Fund Manager

By Keiron Root

By Keiron Root

8 March 2001

The primary task of most fund managers is to identify shares that are going to increase in value, but the manager of an income fund also has another, more pressing objective. That is to generate income for his investors and, preferably, a level of income that increases over time, while still making sure that his portfolio maintains its value. Managing this delicate balance between yield and stability is the task that faces Carl Stick, manager of the Rathbone Income Trust.

"I joined Rathbone four and a half years ago on the private client side and then moved across when the chance came up to join the fund management team. Anyone who comes into this business wants to spot an idea that no one else has spotted, but when you are working on private client accounts, you don't get a lot of opportunity to look at companies," he says.

"Rathbone's fund managers spend at least 75 per cent of their time looking at companies and if you get an idea for an investment you are expected to follow it through. If you do something really 'off the wall' and it doesn't work, you have to justify it. With the Income fund, for example, there are some quite strict requirements that I have to achieve, but how I achieve them is up to me.

"Our investment process is about harnessing people's flair and ability. You are looking at companies and trying to spot the winners, and that is the key to successful fund management. When I am interviewing graduates, if I ask them why they want to go into fund management and they say something vague like 'because it's a good career', I am not interested. What I am looking for is someone who says 'I want to understand how a company works' or 'I want to spot a winner'.

"The way I run the fund is to direct my resources towards looking at smaller companies. You need to build a background knowledge of stocks as you don't know what is going to happen in six to 12 months."

Mr Stick took over responsibility for Rathbone Income at the beginning of last year. "It is one of the longest established unit trusts, but also one of the smallest. When I took it over it was a very concentrated fund, with around 35 stocks in the portfolio, but I wanted it to be my fund and not something I had just inherited," he says.

"It had some big holdings, for example British Telecom and Billiton were around 7 to 8 per cent each, so I reduced some of the larger holdings and spread the portfolio around a bit more, so that it now typically has 45 to 50 holdings."

The smaller company focus is unusual given that the fund's objective is to generate income. "It is a UK equity income fund and that defines its investments - they must be UK companies, they must be equities, we don't hold any fixed interest, and they must have a yield. I have a target income distribution for each year, my year end is 16 October, and I know what I have to do to achieve it. I invest in growth companies because if a company is growing the level of income it generates should be growing as well," says Mr Stick.

"The stocks I buy must have a high yield, which is why the fund has no tech stocks and, currently, no telecoms either. When I look at a company, the first question I ask is does it pay an income. The level of income you are looking for varies from sector to sector - for example, if you are looking at a media stock, then a yield of 2.5 per cent is reasonable, whereas you would expect 6 per cent or more from utilities, but across the board you are looking for dividend growth in the future."

Mr Stick says his fund benefited from the market's infatuation with tech stocks at the beginning of last year: "You could get into a lot of good old economy stocks on high yields and the fund has benefited from the value released by these high-yield situations - for example, we bought Lloyds in March last year."

Indeed, Mr Stick tries to maintain a broad capitalisation spread. "I hold 35 to 40 per cent in FTSE 100 stocks, a further 35 to 40 per cent in 250 mid-caps and around 20 per cent in small caps. You always need to have an element invested in small caps if you want the portfolio to grow. I am going to stick to a maximum of 50 stocks as if you go above that you start to lose your focus."

In recent months, Mr Stick's portfolio has had a defensive look: "We have seen very volatile markets this autumn and winter, and the fund has benefited from holding defensive stocks. I maintained its weighting in financials and construction, did well in UK-orientated retailers and moved money into water stocks. The smaller company focus was shown in holdings like Yorkshire Group and a construction stock called Gleeson. Debenhams and House of Fraser did very well over Christmas and among the large stocks we made investments in Diageo and Anglo American. If I can build up income during the first part of the year, I might be able to move more into growth stocks later on."

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

Voices
On the last day of campaigning before the polling booths open, the SNP leader has written to voters in a final attempt to convince them to vote for independence
voicesIs a huge gamble on oil keeping the First Minister up at night?
Life and Style
tech

Apple has been hit by complaints about the 1.1GB download

Arts and Entertainment
Liam Neeson said he wouldn't
tv

Liam Neeson's Downton dreams

Sport
A 'Sir Alex Feguson' tattoo
football

PROMOTED VIDEO
Arts and Entertainment
Ben Whishaw is replacing Colin Firth as the voice of Paddington Bear
tv

Thriller is set in the secret world of British espionage

Life and Style
life

Life and Style
fashion

Bomber jacket worn by Mary Berry sells out within an hour

Arts and Entertainment
Rapper Jay Z performs on the Pyramid Stage at Glastonbury in 2008
musicSinger sued over use of the single-syllable sample in 'Run This Town'
News
i100
Arts and Entertainment
Rosalind Buckland, the inspiration for Cider with Rosie died this week
booksBut what is it like to be the person who inspires a classic work of art?
Arts and Entertainment
Pointless host Alexander Armstrong will voice Danger Mouse on CBBC
tv

Much-loved cartoon character returns - without Sir David Jason

Arts and Entertainment
tv

Arts and Entertainment
Actor and director Zach Braff
tv

Arts and Entertainment
Meera Syal was a member of the team that created Goodness Gracious Me
tv

Actress to appear in second series of the hugely popular crime drama

Arts and Entertainment
tvReview: An undercooked end (spoiler alert)
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

    £320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

    Property Underwriter

    £70-90,000: Saxton Leigh: Our client a London Market Insurer are seeking a Pro...

    Operational Risk Manager - Asset Management

    £60,000 - £80,000: Saxton Leigh: Our client is an leading Asset Manager based...

    Trainee Recruitment Consultant Birmingham

    £18000 - £23000 per annum + Comission: SThree: The SThree group is a world lea...

    Day In a Page

    Mystery of the Ground Zero wedding photo

    A shot in the dark

    Mystery of the wedding photo from Ground Zero
    His life, the universe and everything

    His life, the universe and everything

    New biography sheds light on comic genius of Douglas Adams
    Save us from small screen superheroes

    Save us from small screen superheroes

    Shows like Agents of S.H.I.E.L.D are little more than marketing tools
    Reach for the skies

    Reach for the skies

    From pools to football pitches, rooftop living is looking up
    These are the 12 best hotel spas in the UK

    12 best hotel spas in the UK

    Some hotels go all out on facilities; others stand out for the sheer quality of treatments
    These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

    Widespread fear of Isis is producing strange bedfellows

    Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
    Topshop goes part Athena poster, part last spring Prada

    Topshop goes part Athena poster, part last spring Prada

    Shoppers don't come to Topshop for the unique
    How to make a Lego masterpiece

    How to make a Lego masterpiece

    Toy breaks out of the nursery and heads for the gallery
    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
    Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

    Ian Paisley’s decision to make peace with his IRA enemies

    His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
    'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

    'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

    Exclusive extract from Janis Winehouse's poignant new memoir
    Is this the role to win Cumberbatch an Oscar?

    Is this the role to win Cumberbatch an Oscar?

    The Imitation Game, film review
    England and Roy Hodgson take a joint step towards redemption in Basel

    England and Hodgson take a joint step towards redemption

    Welbeck double puts England on the road to Euro 2016
    Relatives fight over Vivian Maier’s rare photos

    Relatives fight over Vivian Maier’s rare photos

    Pictures removed from public view as courts decide ownership
    ‘Fashion has to be fun. It’s a big business, not a cure for cancer’

    ‘Fashion has to be fun. It’s a big business, not a cure for cancer’

    Donatella Versace at New York Fashion Week