Post on 26-Mar-2015
RATHBONE UNIT TRUST MANAGEMENT LIMITED
How does one invest in an era of low rates?
Cofunds Economic ForumCarl Stick, 28th September 2011
RATHBONE UNIT TRUST MANAGEMENT LIMITED
Cofunds conference
Agenda:
What is the problem?
What is the solution?
A value oriented investment process.
Rathbone Income Fund
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RATHBONE UNIT TRUST MANAGEMENT LIMITED
What is the problem?
“Investing consists of exactly one thing: dealing with the future. And because none of us can know the future with certainty, risk is inescapable.”
The Most Important Thing, Howard Marks, 2011
Low returns High risk
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RATHBONE UNIT TRUST MANAGEMENT LIMITED
What is the problem?
Where is the value in today’s market? Where can one find decent returns without taking on undue risk?
How does one save for one’s retirement? How does one guarantee an adequate income stream? And when?
How does one save for healthcare...
...Education – university fees?
Bears prefer bonds, but with yields so low, there is substantial inflation risk. Does one target sub-investment grade?
Commodities? Cash? Property? Equities?
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RATHBONE UNIT TRUST MANAGEMENT LIMITED
What is the problem?
“Question: How does one invest in an era of low rates? Answer: One invests poorly, because the available investment options are themselves often impoverished?”
– James Grant, Interest Rate Observer, Apr 2005
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RATHBONE UNIT TRUST MANAGEMENT LIMITED
What is the solution?A value investment process
The Analysis of Risk
Good Outcome Bad Outcome
Good Process Deserved Success Bad Break
Bad Process Dumb Luck Poetic Justice
Process is more important than Outcome!6
RATHBONE UNIT TRUST MANAGEMENT LIMITED
Place your vote now…..
A.HeadsB.Tails
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RATHBONE UNIT TRUST MANAGEMENT LIMITED
Can we kill the company?
What is the solution?A value investment process
The Analysis of Risk
Volatility, illiquidity, and deviations from a benchmark are not risks.
Price Risk
Business / Fundamental Risk resulting in loss of capital
Financing Risk
Benchmark / Career Risk – not a true risk.
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RATHBONE UNIT TRUST MANAGEMENT LIMITED
A value oriented investment process
Identifying value
The crucial importance of a value discipline: if you pay a low enough price for a stock, you build in a margin of safety...
9Source: Thomson Datastream
DIAGEO12/9/119293949596979899000102030405060708091034567891011121314510152025303540DIAGEO (~£ )DIAGEO - DIV.PER SHR.(R.H.SCALE)Source: Thomson Datastream ITE GROUP12/9/1120022003200420052006200720082009201000.501.001.502.002.503.000123456ITE GROUP (~£ )ITE GROUP - DIV.PER SHR.(R.H.SCALE)Source: Thomson Datastream HMV GROUP12/09/1120022003200420052006200720082009201000.501.001.502.002.503.00012345678HMV GROUP (~£ )HMV GROUP - DIV.PER SHR.(R.H.SCALE)Source: Thomson Datastream
RATHBONE UNIT TRUST MANAGEMENT LIMITED
Rathbone Equity Income as a solution?
What can investors expect?
Strict adherence to a risk and value oriented investment discipline.
Focus on the consistent rather than the spectacular – investment rather than speculation.
We do something different. We make positive investment decisions, aggressively overweight or underweight industry sectors, and content to hold strong small and mid-cap positions.
Strength of business models, balance sheets, and free cash flow.
Sustainable and increasing dividends – this means that our distributions are similarly robust.
Stable, committed and long-serving management team.
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RATHBONE UNIT TRUST MANAGEMENT LIMITED
The Rathbone Income FundPerformance since January 1st, 2000.
Invesco Perp Income 1 / 52
Invesco Perp High Income 2 / 52
Rathbone Income Inc 3 / 52
SJP UK High Income 4 / 52
Royal Bank of Scot Eqty Inc. 5 / 52
11Source: Bloomberg Finance, September 2011Performance data: Financial Express, bid to bid, total return.
RATHBONE UNIT TRUST MANAGEMENT LIMITED
Authorised and regulated by the Financial Services Authority and a member of the IMA.Rathbone Unit Trust Management Limited : Registered Address 159 New Bond Street, London, W1S 2UDRegistered No. 2376568 - A Member of the Rathbone Group
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.
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