Video transcript
Speakers
- Victoria Bartlett – Senior Investment PR Manager, Rathbones
- Alexandra Jackson – Fund Manager, Rathbone UK Opportunities Fund, Rathbones Asset Management
Transcript
Introduction
Victoria: Hello, I’m Victoria Bartlett, Senior Investment PR Manager at Rathbones. I’m joined today by Alexandra Jackson, Fund Manager of the Rathbone UK Opportunities Fund at Rathbones Asset Management. We’re going to discuss Alexandra’s investment philosophy, how she approaches the market and what makes this strategy stand out. Alexandra, thank you for joining me.
Alexandra: Thank you for having me.
This is now my 20th year at Rathbones and, throughout that time, I’ve worked across our global and UK equity funds. I was the analyst and assistant portfolio manager on the Rathbone Global Opportunities Fund for seven years before taking over this fund in 2014.
During my time on the global strategy, I had a front-row seat to the philosophy and process behind that successful fund. I saw an opportunity for an unconstrained quality-growth approach focused entirely on the UK market.
Finding opportunities in the UK market
There is often a barbell perception of the UK market. At one end, you have large-cap, dollar-earning businesses, often operating in lower-growth sectors. At the other, there is a long tail of more domestically focused or binary businesses.
This fund sits between those extremes. Our quality requirements steer us away from lower-quality companies, while our growth focus keeps us largely out of the mature large-cap segment.
Our sweet spot is a group of predominantly mid-cap compounders with the characteristics that would appeal to a global manager. This is where our team’s experience, forensic research, active engagement and disciplined risk management can add value.
Our aim is to give clients access to the FTSE 100 companies of tomorrow at an earlier stage of their development, while maintaining high active share, low turnover and strong liquidity. These are world-class businesses that we believe trade at a postcode discount simply because they are listed in the UK.
The investment philosophy
Victoria: If we strip everything back to the foundations, what are the core ideas that underpin your approach to investing?
Alexandra: At its simplest, back-testing of UK equities suggests that quality factors, such as return on invested capital, are among the strongest predictors of long-term outperformance. It also shows that mid-cap companies have historically generated the highest alpha relative to both large and small-cap businesses. That forms the core of our strategy today.
This is a multi-cap fund, but we are around four times overweight mid-caps relative to our benchmark and hold less than half the benchmark’s weighting in large-cap companies.
The portfolio’s return on invested capital is 80% higher than that of the benchmark, while its valuation is only 16% higher. We are trying to balance quality with sensible pricing, and that is central to our process.
How ideas enter the portfolio
Victoria: How do opportunities make their way into the portfolio, from identifying an interesting company to building conviction behind the investment?
Alexandra: The process begins with quality screens. Our investable universe includes the FTSE All-Share and AIM market, focusing on companies with a market capitalisation above £100 million. The screening process helps reduce a universe of more than 660 companies to roughly a third of that number.
Between the team, we have often followed, met or invested in many of these businesses over a number of years. We conduct around 250 company meetings annually, and active engagement is a cornerstone of our approach.
The size of the businesses we invest in, combined with our long-standing relationships, allows us to have meaningful two-way conversations with management teams. This helps us understand both the numbers and the narrative behind a business, which is particularly important in this part of the market.
Ideas then go through rigorous fundamental analysis focused on cash flow, capital allocation discipline and identifying any accounting red flags. We assess long-term growth prospects against current valuations.
Finally, we consider how a stock would fit within the wider portfolio, including the exposure it adds, its liquidity profile and potential catalysts. We build positions gradually as our conviction increases.
Risk management and portfolio construction
Victoria: Once positions are in the portfolio, how do you approach risk management and monitor them from day to day?
Alexandra: Ideally, we want to own businesses for the long term, which is reflected in our deliberately low turnover. However, we also have to be pragmatic. Liquidity and risk management are extremely important, particularly in this part of the market.
We typically hold between 50 and 60 companies, meaning there is genuine conviction behind each position without a long tail of smaller holdings.
We cap position sizes at 5% for FTSE 100 and FTSE 250 companies, and at 3% for AIM and smaller-cap businesses. We do not invest in unlisted securities.
On a day-to-day basis, we monitor liquidity closely, while our investment risk team reviews the portfolio on both an ex-ante and ex-post basis. It is a disciplined framework that still provides the freedom to back our highest-conviction ideas.
What differentiates the fund
Victoria: There are many UK equity funds available to investors. What do you believe differentiates this strategy?
Alexandra: I would highlight three key strengths: our global perspective, our multi-cap mandate and our active ownership approach.
First, we compare companies against their global peers rather than simply their UK-listed competitors. This raises the quality threshold and helps us avoid owning fairly mediocre businesses that appear inexpensive only because of their location.
Second, the flexibility of our mandate allows us to invest across the market-cap spectrum. This gives us the best chance to outperform, while also helping with liquidity and continuity. It means we can continue owning successful companies as they grow into the FTSE 100, without becoming forced sellers.
Finally, active management means genuine engagement. We regularly speak with management teams about areas such as capital allocation, narrative discipline and expectation management.
How the fund fits within a wider portfolio
Victoria: Looking at the bigger picture, how do you see this strategy fitting into a broader investment portfolio?
Alexandra: Given its high active share, clear style bias and mid-cap focus, we believe the fund can complement passive investments or lower-tracking-error large-cap funds. It can serve as a complementary building block within a broader UK equity allocation.
Victoria: Thank you very much, Alexandra.
Alexandra: Thank you.
