rathbones' carl stick believes experience of running other funds will put him in good stead to replace patrick evershed
Rathbones' fund manager Carl Stick has one of the hardest jobs in the industry, following Patrick Evershed as manager of the top-performing £27m Special Situations fund.
Stick, who came to fund management after working as head chef for the Crown Prince of Jordan, inherits a fund that ranked first out of 285 funds in the UK All Companies sector according to Standard & Poor's figures, in the 12 months to 31 December, with offer to bid returns of 16.68% against a sector average of -7.77%.
Not only will investors expect Stick to continue that outperformance but he must also continue the top-quartile performance of the £7.3m Capital Growth, £48.5m Smaller Companies and £39m Income funds, which he already manages.
Stick argues that the management of the funds he already runs will enable him to find sound investments for Special Situations. He has already voiced his intention to make the fund his own by moving out of overseas holdings.
How will Rathbones Special Situations differ under your management compared to that of Patrick Evershed?
We have had to draw a line under the past. When a fund is linked to one manager, it is foolish to try and replicate it. However, there are already many synergies between the way Patrick ran the fund and how my funds are run and I will seek to make use of these. If there is going to be a different emphasis, it will be a greater focus on recovery. I will be looking at those companies where, for example, the undervaluation of a stock has been caused by a decline in their profitability at a time when we believe it has come to the bottom of their cycle.
How does this differ from what Evershed did?
There was a focus on finding that type of stock but the fund also looked to find very very speculative and unusual situations that I will not be involved in at the moment because it is not my area of expertise.
You are now running four funds. Do you have time for all of them and how can you ensure that you keep them as separate entities with different styles?
I need to be as efficient as possible with my time while making sure that the different funds maintain their integrity. We are currently looking at whether I should be running the Capital Growth fund. We need to ensure cross fertilisation while ensuring there is not so much overlap that I am running three versions of the same fund.
In the short term, I need to raise enough cash to make sure I have enough money to cover redemptions and in doing this I'll be cutting areas that are alien to me such as China and North America. I know why Patrick was in those markets but if I start running three funds and I need to keep an eye on China and the US, then my workload will increase to an unacceptable level.
I want to take advantage of the substantial overlap between Rathbones Special Situations and Rathbones Smaller Companies that already exists. We may not invest in the same companies but I understand the dynamics behind the sectors and in many cases I know the companies involved as well.
In the short term, I want a proper portfolio that I understand. Once I've done that I will be using it as a vehicle that has been undervalued by the market. The fund will have an emphasis on smaller caps but I can invest all the way through the market.
How does your process differ between the funds you manage?
I am managing three funds that can feed into each other but they are separate entities. The reason we have been so successful on the income fund is that we've had a thematic approach. We've isolated areas of value by recognising at different times there are sectors that are, for macro-economic reasons, undervalued. Once we've isolated those sectors we pick stocks in them that are offering a decent level of yield. It is being driven by a top-down approach and supplemented by stockpicking.
Smaller companies has been similar but it is more company focused. Marina Bond on our team spends nearly all of her time researching smaller companies.
We try to isolate areas of total returns but we are also looking for strong capital growth. We do make use of the themes we identify with the Income fund but we then do a lot of work at the stock-specific level that can then be recycled back into the thematic approach.
So where does Special Situations fit in?
There is an overlap between the Income and Special Situations makes a nice third side to the triangle. In Special Situations we can look at high quality, high growth smaller company stocks. At the same time because we are looking at recovery plays we are looking at finding value as well. In a way we are utilising the skill sets that have been developed in both of the other funds. In Special Situations I can't just buy a high growth company, I need to find one that has a low valuation. If it is growing fast and gets a re-rating, it is as if the fund is experiencing a gearing effect.
So what type of stock could get into the Smaller Companies fund but not Special Situations?
A company that I like now in Smaller Companies is an information technology operator called IDS. Because of its low valuation it could now also be in Special Situations but two or three years ago, at the time of the tech boom, it could not.
How do you divide up your time?
My general feeling is that if you buy into a story, you buy into it for the long term. I'm not a great one for trading in and out. I like to make sure that story is being maintained. My day to day work is based on monitoring companies and making sure that stories are intact. On top of this we need to keep our eye on what is driving the economy at the moment and what themes do we want to participate in.
How have you performed such significant out-performance in the funds?
It's down to stockpicking. We recycle money very quickly into new areas. If you start to get it right, we are always top cutting that money and looking to get it into new ideas. If you're making money in a sector, enjoy the run up that you get but always be ready to take money out and recycle it. That lowers the volatility because although we may lose the top 10% on a rally, it means that we don't get a big drop off at the end and it probably means that we have got in the next sector before everyone else.
FUND MANAGER: Carl Stick
Carl Stick is manager of the Rathbone Capital Growth, Rathbone Income, Rathbone Smaller Companies funds and now the Rathbone Special Situations fund.
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