Video transcript
Speakers
- Victoria Bartlett – Senior Investment PR Manager, Rathbones
- Alan Dobbie – Fund Manager, Rathbone Income Fund, Rathbones Asset Management
Transcript
Introduction
Victoria: Hi, I’m Victoria Bartlett from the PR team at Rathbones. I’m joined today by Alan Dobbie, Fund Manager of the Rathbone Income Fund at Rathbones Asset Management. We’re going to be talking about the strategy today, covering everything from the investment philosophy and process through to why this fund is unique and how it fits into a broader portfolio. Alan, thanks for joining us. Can you tell us a bit about yourself and the core objective behind the fund?
Alan: Thanks, Victoria. As you said, I manage the Rathbone Income Fund and I’ve been at Rathbones Asset Management for more than 20 years. The vast majority of that time has been focused on UK equities and equity income strategies in particular. The fund itself has a very long history, having been around for more than 50 years, so we have a clear understanding of what has served clients well over time.
We focus on UK companies that generate strong cash flows and can pay sustainable dividends. We also give ourselves the flexibility to look across the market to find the best mix of quality, valuation and income.
The objective is straightforward: to deliver an attractive, reliable and growing income stream alongside strong total returns over the medium to long term. We believe that by applying a consistent investment process with discipline, whatever the market environment, the fund can continue delivering for clients for many years to come.
Investment philosophy and core beliefs
Victoria: When it comes to your investment philosophy, how would you describe the core beliefs or principles that guide your approach?
Alan: It really comes down to a few core beliefs that have anchored our approach for almost 20 years. Firstly, risk management sits at the centre of everything we do. We use what we call our “trinity of risk”, which looks at business risk, financial risk and price risk. It’s a simple framework, but it gives us a well-rounded view of where the risks in any investment may lie.
Secondly, income matters, but the quality of that income matters even more. We’re not simply chasing the highest yields. We want dividends that are well covered, resilient and capable of growing over time. That growth is important because it helps protect investors from inflation eroding the purchasing power of their income.
Finally, we believe markets can be inefficient, particularly when uncertainty is high. That’s often when opportunities emerge for patient, disciplined investors who are prepared to think independently and take a long-term view.
Ultimately, our philosophy centres on risk management, high-quality sustainable income and maintaining a long-term, independent mindset.
How investment ideas are developed
Victoria: Can you tell me how new ideas come about and what the process is from taking something from interesting to investable?
Alan: We’ve been following the UK equity income universe for a long time, so many ideas come from revisiting companies we already know well and assessing how their fundamentals and valuations are evolving. Because we typically own around 40 to 50 stocks, we can be very selective about where we focus our attention.
Ideas come from a combination of screening, bottom-up research and an awareness of the broader economic backdrop. We’re not macro investors, but we do think carefully about how movements in interest rates, inflation or growth could create risks or opportunities for companies.
When something looks interesting, we discuss it as a team and conduct a deep dive into the investment case. We examine balance sheet strength, returns on capital, dividend sustainability and valuation. There are always trade-offs, but we want companies that perform well across all these areas.
We also consider how each holding would fit within the wider portfolio. We assess how it contributes to risk management, income generation and return potential. It’s a continual process of challenge and disciplined decision-making to ensure every holding earns its place in the fund.
Managing risk across the portfolio
Victoria: How do you stay on top of risk across the portfolio, and what does that monitoring process look like over time?
Alan: Staying on top of risk is something we do every day. We closely monitor how each company is performing and whether anything material has changed that could affect the investment case. We’re also looking at the portfolio as a whole, including position sizes, correlations and how all the holdings work together. That matters just as much as the risks within each individual stock.
Importantly, we don’t do this in isolation. We work closely with our investment risk team and review a detailed risk dashboard that helps identify exposures or concentrations that may not be immediately obvious.
In addition, twice a year we participate in a formal investment challenge meeting with our CEO and the risk team. In those sessions, we examine performance, portfolio positioning and risk in considerable depth.
For me, effective risk management means remaining alert, asking the right questions and being open to challenge. That disciplined approach has been a key factor in the portfolio’s resilience over many years.
What differentiates the strategy
Victoria: There is a lot of choice available to investors. What differentiates this strategy from others operating in the same space?
Alan: Three things really set this strategy apart: flexibility, discipline and a clear focus on income growth.
In terms of flexibility, we’re not tied to a particular investment style and we don’t hug the index. That gives us the freedom to move across sectors, styles and market capitalisations as opportunities evolve, always with income and total return objectives in mind.
Discipline is equally important. We’ve managed income strategies through a wide range of market environments, and that experience has shaped how we think about valuation and risk. We know when to be patient and when decisive action is required.
Finally, income growth remains at the heart of the strategy. The fund has a long track record of growing its income stream, and maintaining a resilient and rising income remains a key objective.
Why the fund belongs in a portfolio
Victoria: If you were sitting across from an allocator today, what’s the case you would make for why this fund belongs in their portfolio?
Alan: I would say this strategy is designed to be a core part of an investor’s equity allocation. It’s for investors seeking a dependable income stream alongside the potential for long-term capital growth, without taking unnecessary risk.
Because the portfolio is made up of strong, cash-generative businesses, it can bring an element of stability to an equity allocation. Over its long history, the fund has tended to be less volatile than both the wider UK market and the majority of its peers, which can help reduce risk at an overall portfolio level.
Ultimately, the proposition is straightforward. We aim to be disciplined and dependable stewards of investors’ capital through both favourable and challenging market environments, while delivering an income stream that investors can rely on over time.
Lessons learned as a fund manager
Victoria: What’s the most important lesson you’ve learned as a fund manager that you still apply today?
Alan: The biggest lesson is never to become complacent. The moments when you feel most comfortable and convinced that everything is perfectly positioned are often the periods of greatest risk.
A good example was in 2020 during the pandemic. Our fund was performing well because it was positioned in defensive stocks. At the time, there was a strong consensus view that interest rates would remain low for years, banks should be avoided, renewable energy would displace oil companies and growth investing would continue to outperform value.
However, those views had become widely accepted and were already reflected in market valuations. Our experience suggested the opportunity might lie elsewhere, so we tilted the portfolio towards banks, oil companies and value stocks.
It felt uncomfortable at the time, but our experience told us it was the right decision. Balance and resilience across a range of possible futures are what really matter.
Sometimes we describe this as building a “cockroach portfolio” – not necessarily glamorous, but capable of surviving almost anything. That’s a lesson I’ve always tried to keep front of mind: never assume you’ve got everything figured out, keep questioning your convictions and ensure the portfolio is prepared for a range of different outcomes.
Victoria: Thanks very much, Alan. That was really interesting.
Alan: Thanks, Victoria.
