RATHBONE UK OPPORTUNITIES: Small fund but big hopes

Fund manager Alexandra Jackson says it’s a ‘hard slog’ at the moment to interest investors in a UK equity fund. ‘Everyone wants to own a global or technology fund,’ she explains. 

This wariness partly explains why the investment vehicle she runs – Rathbone UK Opportunities – remains on the small size at £41million. But Jackson believes better times for UK equities are around the corner, especially once Brexit talks are out of the way (deal or no deal) and the economy starts to recover from the extreme trauma caused by the pandemic. 

‘I’m excited at the prospect of moving on from Brexit,’ she says. ‘From a stock market sentiment point of view, it would be better to get a deal done, but I’m not worried about a no deal. ‘Hopefully, then, international investors will start coming back to the UK market. Although it won’t necessarily mean overseas investors selling their shares in Spotify to buy a stake in Marks & Spencer, for example, it should mean a keener interest in a range of some of Britain’s best-in-class businesses.’ 

Rathbone UK Opportunities invests across the UK stock market – with holdings in FTSE100 stocks at one end of the spectrum, through to companies listed on AIM at the other end. The emphasis is very much on ‘quality’ growth companies. The result is a portfolio comprising 54 stocks with all holdings having a ‘positive impact’ on overall investment performance. Over the past year, it has comfortably outperformed the FTSE All-Share Index, producing an overall return of 7.9 per cent. This compares with a near 5 per cent loss recorded by the FTSE All-Share.

Jackson is forensic about the businesses she buys. Companies must be generating ‘durable’ cash flow, have ‘strong’ balance sheets and ‘clean’ accounts – while management must be incentivised to deliver shareholder returns. Once companies are bought, no stake is usually allowed to grow much beyond five per cent – three per cent in the case of AIM-listed shares. Currently, a quarter of the fund is in FTSE100 stocks, although most were bought when they were part of the FTSE250. They include industrial conglomerate Melrose, asset manager Intermediate Capital Group and IT specialist Aveva – a ‘tech superstar’ according to Jackson.

Her ideal holdings are ‘idiosyncratic’ businesses that are unaffected by Brexit and Covid – such as fuel cell specialist Ceres Power, whose share price is up 283 per cent over the past year. 

‘It’s a super renewable energy play,’ says Jackson. ‘It’s completed key business deals with both German automotive supplier Bosch and Weichai Power in China.’ The investment, listed on AIM, has proved so successful that she has been trimming it back in recent months to bring it down to three per cent. Although the March market sell-off hit the fund hard, Jackson held firm and didn’t trade any of the portfolio. It means the current holdings are little different to those in March, with the exception of drinks company Fever-Tree and food producer Cranswick (both buys) and gym company The Gym Group (a sell).

‘A lot of damage has been done to UK plc,’ says Jackson, ‘especially in the travel and hospitality sectors. But we could see a decent economic bounce back next year. If so, the UK stock market could stand out among the crowd.’ 

The fund has overall annual charges of 0.79 per cent and its stock market identification code is: B7FQM50. Income payments, made twice yearly, are equivalent to a modest one per cent a year.

This post first appeared on Dailymail.co.uk