Why is your fund a ‘fund to watch,' and how could it work in an investor's portfolio?
Finding an active fund that's worth its fee has become challenging over recent years. In the last decade only 17% of active funds in the IA Global sector outperformed a comparable tracker, a rather depressing figure for most active managers.
The Rathbones Global Opportunities fund beats these daunting odds having returned 271% over the last 10 years, versus the FTSE World's 230% and S&P 500's 259% (all in sterling). Stretch that period to 20 years and our fund's outperformance is remarkable: 942% versus the FTSE World's 699%, driven in part by our high active share (currently 79%).
It can be hard for active investors to hold their nerve when the market's insatiable appetite for momentum squeezes returns into a handful of stocks. Ingrained checks and balances in the investment process gives us focus. We have position size limits of 4% to reduce single stock risk – this is no more evident than with Nvidia. Over the past three years we sold over 75% of our shares as the price went parabolic (and yet it's remained between 3% and 4% of our portfolio). While we believe in letting our winners run, we're also extremely aware of left-field, unexpected events, such as DeepSeek.
Can you give an overview of the team running the fund and your investment process?
By design we have a small team running the fund: fund manager James Thomson, in his 22nd year at the helm, supported by Sammy Dow. But don't mistake a small team as a lack of resources. Over their careers, James and Sammy have developed deep relationships with the sell side. Although much of our research is internal, they draw on the invaluable expertise and reach of global investment banks to assist in their decision-making.
It's virtually impossible for asset managers to get the depth of knowledge and experience available on the sell side. Take the US regional banking crisis in 2023 as an example. At the time, we had three investments in US regional lenders, but one of our trusted sell-side analysts told us a warning light was blinking. After a conversation with the analyst and our own due diligence, we promptly exited all three, soon after two of the three went bust.
As global growth investors focused on developed markets, we avoid highly cyclical companies and those reliant on uncontrollable market forces to outperform, such as commodities. Using predominantly qualitative research, we invest in under-the-radar, global growth businesses, taking advantage of short-term price dislocation while factoring in company quality.
What do you see as the big opportunities and risks for your strategy?
As a growth investor, a repeat of 2022 markets characterised by high inflation, rising rates and economic instability presents a significant risk to our fund. A swing in markets to value-orientated, highly cyclical stocks would likely drive underperformance in the fund.
Although it's difficult to imagine now, a marked slowdown in US GDP growth could hurt our performance, as 71% of the portfolio is invested in America. Should either of these scenarios occur, our basket of high-quality defensive stocks, historically between 15-20% of the fund, should provide some downside protection. In August and September of 2024 there were brief, but not insignificant, sell offs. During both periods our fund fell less than the market (roughly half and a third as much, respectively), thanks to our robust risk management process.
This year has already got off to a lively start, with global market returns broadening out. For a fund with a high active share this presents an opportunity to outperform the index. In the first five weeks of 2025 our fund was up 7% versus the FTSE World's 4.4%, as investors hunted for opportunities outside of the Magnificent Seven/semiconductors theme.
Over the last year we have been playing a theme of the ‘strong get stronger', characterised by increased dominance of industry champions. This was no more evident than in 2024 with two of our highest conviction stocks, Walmart and Costco, significantly outperforming the S&P 500 over 2024. We expect this theme to continue in 2025, punctuated by increasing volatility.
Can you identify a couple of key investment opportunities you are playing at the moment in the portfolio?
Over the last couple of years investors have been captivated by the stratospheric growth of AI which drove Nvidia's market cap from $359 billion at the end of 2022 to $3.4 trillion at the beginning of 2025. Amongst the hyperscalers the AI race feels comparable to the Cold War, with ever growing Capex and R&D spending as they attempt to gain an edge over their rivals. We see further opportunities throughout the value chain.
US-listed software business ServiceNow is a prime example of a successful adopter of AI, capable of integrating across multiple operating systems and monetising artificial intelligence. ServiceNow's AI tool, Now Intelligence, makes IT operations management a seamless process by detecting failures before they happen through to predictive intelligence and virtual agents. The usefulness of its AI offering is tangible, so much so that we use ServiceNow as a vendor for Rathbones Group.
Another beneficiary of the growth in AI is Amphenol, a specialist IT hardware manufacturer and supplier with a diverse portfolio of products. Its optical cables and modules allow for lower power consumption in data centres while delivering more reliable power connectors – an essential part of AI hardware infrastructure.
Any views and opinions are those of the investment manager, and coverage of any assets held must be taken in context of the constitution of the fund and in no way reflect an investment recommendation. 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 what you originally invested.
