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Recovery position

Rathbones boasts one of the oldest brands in financial services, originally founded in 1742 as a Liverpool timber and shipping merchant.

By World War One, the firm was running money for wealthy private clients and now has 120 managers spread across the country.

Rathbones gained various funds through its acquisitions of groups such as Laurence Keen and Neilson Cobbold in the mid-1990s and rebranded these as part of a unit trust division at the end of the decade.

This also involved marketing the products to advisers for the first time, with industry veteran Peter Pearson Lund joining to head this operation.

He feels the unit trust division has clearly benefited from the strength and backing of a big organisation and the company as a whole has enjoyed a raised profile on the back of unit trust marketing.

From £100m under management at outset, the fund arm grew to £2bn at its peak before the recent market downturn took a chunk off this. Much of the money is in Carl Stick’s flagship income fund although the manager has had some notable performance dips in recent times.

To prepare for the post-credit crunch landscape, Rathbones is working to tidy its range, cutting seven funds to five and launching a recovery portfolio.

This comes from a merger of the smaller companies and special situations vehicles and the resulting proposition will look across the market-cap spectrum.

Both the previous funds were focused on the smaller end of the market and the group believes that advisers will not want such products for the foreseeable future.

Recovery will be headed by Marina Bond, who previously ran the smaller companies portfolio.

She will seek out UK and potentially European companies where the poten-tial for recovery is under-appreciated, with catalysts at either stock, sector, industry or macro level.

Stick previously ran the special situations fund, which was typically either at the very top or very bottom of its sector due to the mandate, and the merger leaves him to focus on the income offering.

After a tough 2008, he has recently tightened his sell discipline, with changes designed to flag up problem companies. Overall, Stick has resolved to be more intolerant of losses.

Elsewhere, the group is also merging the high-income and income & growth vehicles into a blue-chip income & growth fund run by CIO Julian Chillingworth. The income & growth portfolio has an 18-year track record of growing its dividend but never yielded enough to meet UK equity income sector guidelines so it had to sit in UK all companies.

With the income peer group now split into two, the group has one fund in each sector, which it believes offers a clearly defined choice for investors.

Rounding out the range of five are an ethical bond under Bryn Jones and global opportunities run by James Thomson.

Rathbones has avoided the manager turnover of many competitors, typically hiring people from univer- sity and bringing them through the ranks.

Both Thomson and Bond came via this route, as did support manager on the recovery fund Alan Dobbie, and the group boosted its ranks with two trainee manager hires in 2007.

There is now an investment team of nine, with former high-income manager Hugh Yarrow leaving the group as a result of the fund mergers.

Looking forward, Rathbones has various products on the drawing board, including a European income mandate, but has delayed launch until conditions improve.

Pearson Lund says the mergers will be complete by summer and expects some improvement in the market in the second half of the year.

Rathbones has always stuck to its basic areas of expertise, avoiding products such as absolute return, where it does not have appropriate skills.

It has basically kept to the sectors that dominate net new sales, primarily UK equity income, and believes these funds will continue to dominate as we move out of the current market malaise.

Stick’s fund had a healthy 10 per cent-plus market share of income sector inflows back in 2006 but this has waned as his numbers dropped off.

That said, he is one of the sector’s few managers who has produced a rising dividend stream year after year.

Pearson Lund expects the vehicle to return to prominence as demand for high-yielding funds continues to rise although he acknowledges performance needs to return to the top quartile.

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