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RATHBONE UNIT TRUST MANAGEMENT LIMITED
How does one invest in an era of low rates?
Cofunds Economic Forum
Carl Stick, 28th September 2011
RATHBONE UNIT TRUST MANAGEMENT LIMITED
Cofunds conference
Agenda:

What is the problem?

What is the solution?


A value oriented investment process.
Rathbone Income Fund
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RATHBONE UNIT TRUST MANAGEMENT LIMITED
What is the problem?
“Investing consists of exactly one thing: dealing with the future. And because none of us can
know the future with certainty, risk is inescapable.”
The Most Important Thing, Howard Marks, 2011
Low returns
High risk
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RATHBONE UNIT TRUST MANAGEMENT LIMITED
What is the problem?

Where is the value in today’s market? Where can one find
decent returns without taking on undue risk?

How does one save for one’s retirement? How does one
guarantee an adequate income stream? And when?

How does one save for healthcare...

...Education – university fees?

Bears prefer bonds, but with yields so low, there is substantial
inflation risk. Does one target sub-investment grade?


Commodities? Cash? Property?
Equities?
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RATHBONE UNIT TRUST MANAGEMENT LIMITED
What is the problem?

“Question: How does one invest in an era of low rates?
Answer: One invests poorly, because the available investment
options are themselves often impoverished?”
– James Grant, Interest Rate Observer, Apr 2005
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RATHBONE UNIT TRUST MANAGEMENT LIMITED
What is the solution?
A value investment process
The Analysis of Risk
Good Outcome
Bad Outcome
Good Process
Deserved Success
Bad Break
Bad Process
Dumb Luck
Poetic Justice
Process is more important than Outcome!
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RATHBONE UNIT TRUST MANAGEMENT LIMITED
Place your vote now…..
A. Heads
B. Tails
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RATHBONE UNIT TRUST MANAGEMENT LIMITED
What is the solution?
A value investment process
The Analysis of Risk
Volatility, illiquidity, and deviations from a benchmark are not risks.

Price Risk

Business / Fundamental Risk
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Financing Risk
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Benchmark / Career Risk – not a true risk.
resulting in loss of capital
Can we kill the company?
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RATHBONE UNIT TRUST MANAGEMENT LIMITED
A value oriented investment process
Identifying value

The crucial importance of a value discipline: if you pay a low enough price for a
stock, you build in a margin of safety...
H MV G R O U P
D IA G E O
ITE G R O U P
1 2 /9 /1 1
14
40
12 /9/11
12 /09 /11
3.00
3.00
6
2.50
5
8
7
13
2.50
35
12
6
11
30
2.00
2.00
4
1.50
3
1.00
2
5
10
25
9
1.50
4
8
20
3
7
1.00
15
6
2
0.50
5
0.50
1
1
10
4
0
3
5
92
93
94
95
96
97
D IAG EO ( ~ £ )
D IAG EO - D IV.PER SH R .( R .H .SC AL E)
98
99
00
01
02
03
04
05
06
07
08
09
10
So u r c e : Th o ms o n D a ta s tr e a m
Source: Thomson Datastream
0
20 02
20 03
20 04
20 05
ITE G R O U P ( ~£ )
ITE G R O U P - D IV.PER SH R .( R .H .SC ALE)
0
20 06
20 07
20 08
20 09
20 10
20 02
20 03
20 04
20 05
H MV GR OU P (~£ )
H MV GR OU P - D IV.PER SH R .(R .H .SC AL E)
0
20 06
20 07
20 08
20 09
20 10
So urc e: Th oms on D atas tre am
So ur c e: Th oms on D atas tre am
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RATHBONE UNIT TRUST MANAGEMENT LIMITED
Rathbone Equity Income as a solution?
What can investors expect?

Strict adherence to a risk and value oriented investment discipline.
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Focus on the consistent rather than the spectacular – investment rather than speculation.
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We do something different. We make positive investment decisions, aggressively overweight or
underweight industry sectors, and content to hold strong small and mid-cap positions.
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Strength of business models, balance sheets, and free cash flow.
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Sustainable and increasing dividends – this means that our distributions are similarly robust.
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Stable, committed and long-serving management team.
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RATHBONE UNIT TRUST MANAGEMENT LIMITED
The Rathbone Income Fund
Performance since January 1st, 2000.
Invesco Perp Income
1 / 52
Invesco Perp High Income
2 / 52
Rathbone Income Inc
3 / 52
SJP UK High Income
4 / 52
Royal Bank of Scot Eqty Inc.
5 / 52
Source: Bloomberg Finance, September 2011
Performance data: Financial Express, bid to bid, total return.
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RATHBONE UNIT TRUST MANAGEMENT LIMITED
IMPORTANT INFORMATION

The information contained in this presentation is for use by investment advisers and is not
intended for circulation to private clients or the general public

Past performance should not be seen as an indication of future performance. The value of
investments and the income from them may go down as well as up and you may not get back
your original investment.
Authorised and regulated by the Financial Services Authority and a member of the IMA.
Rathbone Unit Trust Management Limited : Registered Address 159 New Bond Street, London, W1S 2UD
Registered No. 2376568 - A Member of the Rathbone Group
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