Carl Stick FM profile

Rathbones Carl Stick has consistently been one of the top performers in the income fund sector in recent years, but it has not been all plain sailing.

Carl Stick FM profile

|

Stick has been the manager of the £994m Rathbone Income Fund since January 2000 and has been a board director of Rathbone Unit Trust Management since October 2001.

“I started at a small stockbroking firm called Neilson Cobbold in 1996, which was then acquired by Rathbones,” Stick says.

Although it was a relatively brief stint at the brokerage, it shaped Stick in terms of how he goes about his work as a fund manager to this day.

“I spent a year and a half working on the private client side there and that experience has had a big impact on my later career and how I view the running of funds.

“Something that I consider really important is to always consider who the end user is, because a fund is not something that is just charts and data points, there are people invested who rely on the dividend cheques coming in. We are providing money for peoples’ retirement income or possibly to pay for healthcare costs,” Stick explains.

Stellar progression

Following the acquisition of Neilson Cobbold, Stick’s rise to managing a fund was rapid.

“I was doing various research and going to company meetings in that role, then towards the end of 1999 I was offered the chance to manage the income fund I run now.”

From then the fund enjoyed explosive growth, something which Stick later found to be a double-edged sword.

“It was a tiny fund of around £9m when I took over, created for the families of the people at the firm. By 2007 it had reached £1.3bn, which makes a huge difference. I was in the right place at the right time to be able to invest in that way though, bearing in mind that in 2000 the market was shooting the lights out.”

Even the bursting of the tech bubble did not provide an obstacle to the fund’s growing success. In fact it was quite the opposite.

“We were in the final stages of the tech boom when I took over the fund but despite that it didn’t occur to me to buy stocks like Vodafone, for example, because it didn’t provide a dividend. The fortunate part of that is when the market collapsed, people made a dash for safety and moved into high-yielding stocks, so we were ideally positioned.

“I’d like to say this was some amazing foresight of the crash happening but it wasn’t, I had just been doing what I believed I was supposed to do as an income fund manager,” he adds.

Getting burnt

Stick and his colleagues continued to have a spectacular seven years, taking full advantage of the bull-run in equity markets. Then came the credit crisis and, like many, Stick came unstuck.

As with life generally however, in fund management you can learn a lot more from your mistakes than your successes, and this is something Stick readily embraces.

“The error that we made in the mid-2000s and 2007 in particular was getting too caught up in the long-term view and not recognising what can happen in the short term. It is all very well saying we are investing for the long term, but how long is long-term?

“We had bought a lot of stocks which were cheap at that point but became very expensive due to the good run equity markets had. A phrase often used up to 2008 was ‘How efficient is your balance sheet?’, which was just a euphemism for ‘Can you gear up more?” Stick says.

“So a lot of businesses that didn’t really need to take on debt to operate were encouraged to become leveraged. When the credit crisis occurred we were quick to reduce our banking exposure, but where we were naïve and inexperienced was in failing to recognise the further implications it would have.

“Many of the companies we had invested in were put under stress as the banks said they would not lend to them anymore or raised the rates on the lending they had already taken up. Suddenly, business models which were fine in a risk-on environment were in trouble. There were companies which in 2006 people were happy to pay 18 or 19 times earnings were now only at 12 times.”

This experience lead to an overhaul in Stick’s investment process, with him putting a far greater emphasis on risk from 2009 to the present day.

“We were doing a lot of things very well but we lost sight of the price risk. The fact that if you build up a fund very quickly with a lot of companies that become expensive, it can really hurt when things go the other way.”

“I’m not a gambler or speculator, I wouldn’t be very good at running money on the basis of ‘buy this today, sell it for more tomorrow and switch into something else’, repeating the trick over and over. What I do is invest in very good businesses which over the medium to longer term can achieve compounded earnings growth. It’s important to make sure the business is viable and growing, not only offering dividend yield now.

“As an equity fund, you always have some risk. If the market falls steeply you will be affected by that to some extent, you can’t make your fund bulletproof against any fall but you can minimise risk. It’s crucial that your process stops mistakes happening.”

Riveting read

Stick’s top-10 holdings list makes for an interesting read. It has some very familiar names and a couple you would not necessarily expect to see.

“We keep a good channel of communication with our investors because we don’t follow the index,” Stick says.

“We do own a lot of large-cap businesses that you would find in other peoples’ funds too like Astrazeneca, and some other pharmaceuticals. There are also stocks like HSBC which are in a lot of funds because it is a large part of the market, but we own it for very stock-specific reasons.”

Stick explains that while the UK is the focus, he is keen to keep his horizons broader and his top 10 shows this.

“We also look outside the UK for some of our biggest holding, such as Lockheed Martin for example.”

He also likes to look for gems further down the market-cap scale.

“We look at the mid-cap space for opportunities and have Cineworld in our top 10. Everything in the fund is for stock-specific reasons, we don’t target specific sectors, just individual companies.”

This approach also manifests itself in how he views certain oil companies in light of the recent collapse in the price per barrel.

“With oil stocks like Shell, although the oil price has dropped to an extent nobody expected, they are some of the best-placed companies in the world for maintaining high dividends, so we are happy to stay where we are for now. It’s a similar story with some commodities companies like Rio Tinto.

We are even looking at adding some other commodities plays,” he said. While managing such a large amount of other peoples’ money always has its pressures, Stick enjoys his work, particularly the variety of experiences it brings.

“The eclectic nature of the job, with its varying aspects and challenges, mean no two days are the same,” he concludes.

MORE ARTICLES ON