Rathbone Income fund: 19 years of dividend increases, August 2019

Carl Stick didn't set out to be a fund manager: one his first jobs was as a pastry chef for the Crown Prince of Jordan. 

He rather stumbled into the role after he took up a position as an assistant private client manager with stockbroking firm Neilson Cobbold in 1996. The company was bought by Rathbones and the rest, you could say, is history.

This coming January, Carl will celebrate his twentieth year running Rathbone Income, which is on the Chelsea Core Selection. We caught up with him to talk about some of the highs and the lows of the past two decades.

How have the past 20 years played out? 

“Over a period of 20 years you see a lot of different cycles. I started running this fund just after the tech bubble burst, then had a lovely run up to 2007 before the global financial crisis hit. At times like this, when people are being made redundant, you remember it's not just about the fund but the business too.

“Then markets started to go back up again and we've had a strange period over the past decade, when many have had nagging doubts that things are not as good as they appear. Then of course in the last two or three years we've had Trump elected in US, Brexit, and uncertainty. But markets have continued to edge higher. I wonder if now we're at a period of change.”

What have been your best and worst stock picks?

“The best stock is probably the easiest. I've owned Dechra Pharmaceuticals for about 17 years. When I first bought it at the end of 2002 it had a profits warning, its shares halved, and I wondered what I had done. But we had the courage to buy more and, ever since, the shares have turned into a darling of the fund. The shares are about £30 now and we paid about 50p - so that's 60 times growth.

“As for the worst, well there have been a few! There are always things that go wrong. But the biggest lesson I probably learned was on a sector level. We bought car retailers when they were really cheap at the start of the 2000s. One holding, European Motor Holdings was bid for by another company. The management came in and told us it was too expensive (the other company were paying too much) so we should accept. That was great, but we didn't sell the rest of the sector holdings. The shares were too expensive, the sector was too expensive... Two or three other holdings then hurt us in the global financial crisis.”

What is behind the success of your dividend growth record? 

“The fund has increased its dividend in 19 out of the past 20 years. The success of this I think goes back to the private client side where I started. It was there I realised the importance of income to my investors. Growing it consistently is key, so that is where I have focused. I basically aim to give clients a pay rise every year. The one year it didn't rise was in the global financial crisis. The big banks were growing dividends at a stonking rate and I should have realised they were not sustainable. So I had to reduce the distribution on the fund - albeit the reduction was less than that of the market.”

What is your outlook for the stock market? 

“I never try to predict the future. Instead, I try to balance the risk across the portfolio. To do this I focus on the price I pay for companies. I have exposure to the UK as it is cheap, but there is a massive risk surrounding Brexit - not just on 31 October. It will take a long time to sort itself out. So I also own UK companies with global exposure too. That means the fund is not beholden to one outcome or another.

“We are starting to see value come through in the UK too. Merger and acquisitions are starting to pick up, as we saw with Green King last week. It just depends on how patient you can be as an investor, and how much business risk you are willing to take on.” 

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Carl's views are his own and do not constitute financial advice.
Published on 22/08/2019