The Rathbone Recovery managers on inheriting the fund from Julian Chillingworth


“This is a great job for a busy and curious mind; it is a great job for anyone,” says Alexandra Jackson, co-manager of the £64m Rathbone Recovery fund. She is talking about fund management as a career at a time when it is failing to attract more women.

Jackson and co-manager Joanne Rands have been lead managers of the Recovery fund for more than two years, since Julian Chillingworth stepped down from fund management to focus on his duties as chief investment officer at the firm.

“The best proof and way to encourage more people in the industry is to just do it,” Jackson says. “There is also a misconception of what this job is. You don’t have to be at your desk all the time.”

Jackson says she and Rands have developed the investment process together to create a strategy “we both really believe in”.

“What we have developed was borne out of our experiences and from the way we are able to best run money. We have a reputation for not turning down any meetings with companies.”

Jackson has been with Rathbones for 10 years, having started as an equities and bonds analyst before moving to manage the Global Opportunities fund with James Thomson in 2008, when the financial crisis took over. Jackson admits 2008 was very stressful but says it never put her off.

She says: “You should stay close to the companies you own or the companies you are interested in; remain close to analysts; keep your eye on the ball and don’t obsess too much about current performance.”

Rands began her career at HSBC as an assistant manager on the UK equity funds, with roles as a small and mid-cap manager at Hermes and as a partner and broker for Peel Hunt before joining Rathbones in 2014.

Rands says she has honed her strategy over the years by learning on the job.

“I’ve learned from the mistakes I’ve made from any poor investment decisions and over the years have used that to refine my investment process accordingly,” she says.

“We have a reputation for not turning down any meetings with companies.”

Jackson says the fund is a concentrated portfolio of around 50 stocks with a 20 per cent exposure to FTSE 100 stocks and the rest in AIM, small and mid caps, making the fund “very different” from its benchmark, the FTSE All Share, meaning it is actively managed.

“The fund has always been biased this way and we know that over the long term small and mid caps do outperform and there are always recovery opportunities wherever we are in the cycle.”

Jackson says recovery investing “means different things to different people,” adding that the fund doesn’t behave as a value fund or a thematic fund.

She says: “For us recovery investing is all about cashflow. We feel that returns are what determine the direction of share prices, and the return measure we favour is the cashflow return on capital.”

The pair uses quantitative software Quest to model the cashflow on capital of companies.


Jackson says: “Quest measures how efficiently a business can make cash profit from its capital base. Cash is very important rather than just straightforward earnings because companies are less able to manipulate cash rather than profits and we are interested in how efficiently they can turn their capital base into cash profits.”

Since the managers took over the fund in 2014 it has beaten its its benchmark, the FTSE All Share, with returns of 10.11 per cent against 9.68 per cent, according to Morningstar. However, it has slightly lagged the index and the IA UK All Companies sector over one year, returning 10.7 per cent  against the 16.82 per cent of the index and the sector’s 11.74 per cent.

The duo had to deal with the sell-off in mid and small cap stocks following the Brexit vote. Rands says: “The first couple of months following the vote to leave the EU were predictably difficult for our fund, given our mid and small cap domestic bias. We acted to remove a few names that we felt might struggle in a slightly harder economic backdrop. Self-help stories have certainly become ever more important, as have a strong balance sheet, cash flow and an excellent management team.”

The managers believe consumer-facing names will continue to struggle. They have sold online clothing seller N Brown as the change in its business model from being credit-led has been “hard” for the company. They have also sold large caps Taylor Wimpey and Lloyds following the Brexit vote.

Jackson says: “We felt the investment case just didn’t look strong for either firm. For Lloyds you need a strong interest rates environment and we think the outlook for capital returns has dimmed from what we hoped it would be.

“On Taylor Wimpey, returns post crisis really dipped, then picked up again. We bought it in November 2014, it was doing very well with great valuation support and the boost from the help to buy scheme. But then with the uncertainty after the EU referendum and the impact on transaction volumes, returns were forecast to come down in the sector overall.”

The couple is now focusing on firms that are streamlining businesses at their core
post-Brexit. Jackon says: “As recovery investing can be quite volatile, the goal is to reduce volatility. We try to find companies where the risk is tolerable rather than excessive. We want to see a decent balance sheet, we don’t want to invest in companies where there is financial gearing or operational gearing as this doesn’t give you flexibility.”

The top holding in the fund, Shell, makes up 3.76 per cent of the fund.

Jackson says: “The latest Shell results were very good. What is appealing to me is the gearing level below 30 per cent, which gives us comfort that they can pay the dividend. They are disposing of assets around the world, the cash position was very good and they have managed to keep capex down.”

The managers also hold software firm Micro Focus International at 3.39 per cent, which benefited from the takeover of the software of HP and is improving its margins “quite significantly.”

Looking forward, the managers are encouraged by PMI numbers in the UK and a more positive economic outlook coming from the Bank of England but say there will continue to be pressures on the consumer side, especially for next year.

Jackson says: “Consumers will probably reign in spending in the face of uncertainty plus inflation coming through – those two things together could depress cashflow returns for some companies.

“But we look at companies that can do a lot despite that. Where they divorce from the macro to some extent.”



Alexandra Jackson joins Rathbones as equity analyst

July 2009

The Rathbone Recovery fund is launched


Rands joins Rathbones from Peel Hunt

June 2014

Jackson and Rands start managing the Recovery fund

The numbers


Assets in the Rathbone Recovery fund


Cash exposure in the Recovery fund


Return of the fund over the past year


Position of Shell, the largest holding in the fund


Current number of stocks on the Rathbone Recovery fund