Rathbones Group is a leading, independent provider of investment and wealth management
services for private investors, charities and trustees, including discretionary investment
management. In September 2023, Rathbone and Investec Wealth & Investment UK
combined – creating the UK’s leading discretionary wealth manager with $125 billion of
funds under management and administration. Within the group, Rathbone Investment
Management (discretionary management) are fundamental investors who combine top-
down asset allocation and sector analysis with stock-picking.

Sanjiv Tumkur joined Rathbone Investment Management in 2016 as Head of Equity Research, becoming Head of Equities in 2022. He is responsible for developing and promoting
Rathbones’ equity investment philosophy and process. He joined from Investec Wealth where he was a member of the Research team and provided equity analysis and recommendations to the firm’s investment managers. After reading Philosophy, Politics and Economics at Oxford University, Sanjiv spent nine years at Morgan Grenfell. He then spent three years at AllianceBernstein.

How have things changed since the merger?
Post-completion, we are working to align Rathbones’ and IWI UK’s approaches, looking at
both organisations and incorporating the best from each. We are similar businesses, with
similar client bases and client objectives, and we are excited about the opportunity to create
the UK’s leading discretionary wealth manager.

Does Rathbone Investment Management (discretionary management) share meetings with the Unit Trust team?
We do share meetings and it is a very cooperative and collegiate environment, but they
have their own investment processes for the specific unit trust strategies.

Geographic split of equity investments?
There is still a slight bias to UK holdings but that’s definitely shifted in the last two to three
years. When I started seven years ago, we had a lot more ownership of UK equities and a
decent list of overseas companies, but we’ve built up that list, improved the quality and
breadth of it and had a lot more buy-in to non-UK ideas. And that’s a major driver of the
business – increasing exposure to direct overseas equities.

How would you describe your investment style?
We are a broad church, supplying ideas to tens of thousands of clients with differing risk
profiles so we’ve got 128 stock recommendations across UK and overseas equities. Some
are value, some income, some growth, but quality and competitive advantage are the
common threads. Our ideal company is a ‘quality compounder’ with a leading market position, a defensible competitive advantage, high ROIC, high margins, strong cash flow, a
sensible balance sheet and appropriately incentivised management.

Which screens do you use?
Firstly, to help the sell discipline, we have a “suspect screen” and that’s where companies
have consecutive months of underperformance and downgrades. We are now developing a
positive “suspect screen” for when companies have consecutive months of outperformance
and upgrades. We have a number of other screens as well that look at quality factors,
earnings momentum and those sorts of things.

Minimum market cap?
US and Europe – $1 billion but it is relatively rare that we look at companies below $5 billion
unless they have a really interesting niche or growth opportunity.

Average time a stock is on the recommended list?
A lot of the names have been on the list for the seven years I’ve been here. Longer holding
periods cut down dealing costs We focus on quality companies with durable competitive
advantage, and these tend to be consistently attractive as long as they do not become
overvalued. Our significant increase in direct overseas equities (rather than investing in
third party funds and paying management fees) has very much been towards these quality
long term holdings.

Sector allocation?
We have top-down asset allocation guidance and a Strategic Asset Allocation Committee.
We also have a Sector Committee which gives guidance on which sectors we should be over
and underweight.

Any sectors you won’t invest in?
As part of our bespoke proposition individual clients can ask us to exclude specific sectors
from their portfolio if they have particular requirements. We also have a group responsible
investment policy which covers investments that are exposed to activities which fail to meet
certain minimum climate or responsible investment standards based on applicable UK
legislation, international treaties and other initiatives.

Of the nine analysts in the equity research department, are all sectors covered?
All sectors are covered. Each analyst has 2 to3 industry level sub-sectors e.g., within
financials – banks, insurance and diversified financials and they look at UK, US and European
names.

How does a stock make it on to your recommended list?
Analysts already know any company of a reasonable size in their sector. We then use
screens and thematic work to get a stock onto the ideas pipeline. We try to generate new
ideas all the time as we like to expand the recommended list, so we have more choice for
our investment managers.

We look at the fundamentals of a business. Whether it is growing in a certain way that
makes it interesting. Thematic – does the company play into climate change mitigation for
example by having the technology to reduce a building’s carbon footprint/emissions? Once
in the ideas funnel, then the analyst does bottom-up due diligence and produces a detailed
note which is updated annually. The note covers the investment case, the growth drivers,
market position and sustainability of that market position as well as risks to the central
view. Financial analysis includes structure of margins, growth drivers, cash flow etc. We also
like to make sure there’s no accounting shenanigans, ascertain if the level of debt is
appropriate for type of business etc. Valuation is the last consideration, and we use a
common DCF methodology alongside other metrics.

How are new investment ideas communicated to investment managers?
We have weekly investment meetings where new ideas are communicated to our
investment managers. Analysts try and generate as much buy-in as possible based on the
strength of our conviction. Analysts maintain a consistent dialogue, updating when there is
newsflow – results or acquisitions – to remind investment managers why the stock is
interesting.

Discuss some of the stocks on your recommended list.
Microsoft – there are so many different reasons why it’s on our recommended list. Global
leadership with a sustainable competitive advantage. We really like the software products
and the way they are integrated and the way they are now integrating AI into them. We like
Azure as it is very high growth as Microsoft is one of a very small number of global leaders in
that space. Cloud software services penetration is still quite nascent so there’s a long
runway of growth there. Management strategy is very sensible. Basically, we really like the
characteristics of the business, high profit margins, high ROIC, it’s a capital light business
(although they need to invest in hosting infrastructure). High growth (greater than average
corporate growth) which has a long runway, and the recurring nature of revenues gives
great visibility. We seek companies investing in the future of their business and a year or
two ago, we might have been worried about AI and how that might affect Microsoft, but
they were clearly investing a lot in both their own AI and OpenAI (which developed
ChatGPT). And this investment has borne out in spades. So, this is an example of how they
are investing mindfully so their business is as future-proof as they can make it. We think
technology is a massive long term growth theme and Microsoft is a really good way of
playing that. While the valuation has obviously gone up in last five years, it’s one of those
companies that clients can buy and hold for the long term with a reasonable degree of
security.

Honeywell – is a very well managed US industrial conglomerate with some strong market
positions in pretty much all its areas such as building automation and aerospace. And it is
investing well for the future including to improve its ESG position. Decent margins, good
ROIC, good cash flow and management are doing the right things. The issues for Honeywell
are its end markets are not as defensive as Microsoft’s as it is selling to customers with
particular cycles. However, it is performing well at the moment. It’s a longer-term holding. If you want something in industrials you can lock away and leave forever, Honeywell is a very
strong candidate. But there might be stages in the cycle where it does better or worse
whereas Microsoft is more a steady compounder if you look at the earnings profile.

NextEra Energy – is a utility at the forefront of transitioning to clean energy, which we think
is a durable investment theme. It is investing heavily in alternative energy sources. It does
have a conventional power generation business in Florida Power & Light so does have fossil fuel, coal and nuclear exposure which will be gradually phased out. So, it’s not a total green investment but it is transitioning more and more, and it is one of the biggest, if not the
biggest, US investors in renewable infrastructure. It has generally done well over time for us,
and we think it is well positioned.

Do you like to meet management before you put a stock on the recommended list?
In an ideal world yes but sometimes ideas are compelling, and you haven’t had the chance
to meet management. Compared to five years’ ago, you can now see management
presenting online, get a sense of conviction in what they are saying and whether they are
convincing you! You can also read transcripts so with the combination of those, we
generally have enough conviction to put them on our recommended list before meeting
management. But we’d want to meet them soon afterwards.

Preferred method of meeting management?
Because we are servicing such a large internal investment manager population (hundreds),
one of the things we like to do is give them access to meetings as well so they can hear from
horse’s mouth what the company’s strategy is and what the challenges are. What is ideal is
management coming into our offices in London or Glasgow (where we have three analysts)
and stream it live on Teams or Zoom, giving managers in other locations the opportunity to
ask questions/interact live.
Our equity analysts are very experienced (average investment experience of c16 years), so
we always have an agenda of questions. We never let management sit there and talk
through their presentation as not only is it not stimulating for them, but we don’t learn
much either! We ask them questions about what we think really matters to the future of the
company, their competitive position, strategy etc.
The way we interact with companies has obviously evolved due to Covid, as we spent 18/24
months meeting companies virtually. We might prior to that have felt that virtual meetings
were not as good as face-to-face meetings, but we now recognise they have their uses. As
we have 15 offices around the country, virtual meetings give everyone, in all the offices,
access to management meetings.

Why should companies meet you?
We are long term fundamental investors. An ideal investor for companies with a long-term
ethos. We’ve got positive inflows over time as we are a growing business. Also, in terms of
engagement, we take our fiduciary duty very seriously and cooperatively engage with
management re ESG, strategy and remuneration. So ideal investing partners.