Alexandra Jackson, Rathbones UK Opportunities Fund Manager On The Hidden Gems Of The UK Market

Holly Mead (00:00.654)
Welcome to Good Money Guide and the latest in our series of Fund Manager interviews where we aim to find out more about the people managing your money and where exactly they’re investing it. I’m Holly Mead and today we are joined by Alexandra Jackson, Manager of the Rathbones UK Opportunities Fund. Hello. I’m going to start with a hopefully easy question, which is, tell us about your fund. What does it do?

Alexandra Jackson (00:16.297)
Thanks for having me in Holly.

Alexandra Jackson (00:22.03)
So the Rathbone UK Opportunities Fund was born out of my experience running Global Money, which was something I did in the first part of my career, and I was able to see the process and the success of our Global Opportunities Fund up close, and it became clear to me some of those factors that drive those global success stories over multiple years, multiple cycles, and what I really wanted to do was then try and train that process, but just on the UK and see what happened because I was looking at companies all over the world, but I found increasingly that I was pitching UK and actually predominantly UK mid cap stories to the manager who didn’t really need as many as I was suggesting. So I thought if we train the whole process on the UK market and see what comes out of that, I wonder if that is an interesting fund and slightly different to what I saw already on the market there.

The viewpoint is that the UK is actually a great hunting ground for global growth stories that, because they happen to be listed in the UK, they trade on a discount. And so if I can offer access to those businesses, to investors, then I thought that would be an interesting thing to do.

Holly Mead (01:32.046)
And how long has it been going now?

Alexandra Jackson (01:34.062)
So we relaunched in 2018, so yeah, eight years.

Holly Mead (01:39.83)
I feel like that’s been a really tricky period since about then for anything other than a pure growth play and also for the UK that’s been very out of favour. How has that affected things?

Alexandra Jackson (01:52.93)
Yeah, it’s the UK hasn’t been, you know, the place to be in terms of relative returns. Then, within that, mid caps have also struggled. And then within that quality names haven’t been kind of at the forefront of what investors are looking for either. A triple discount, I guess, is what that leaves you with. So I think it’s a really interesting time to look at that now, you know, to reassess what your UK weighting is. Should it be the global benchmark weight, which is less than

4%, you know, it’s very unusual for investors to have so little in their own domestic index, know, Canadian pension funds, Australian pension funds, even though their indices represent a similar amount in the global benchmark, they would have a kind of 30 % weighting. So most people, you know, tend to have a big weighting in their domestic market, but in the UK were a bit unusual.

Holly Mead (02:40.78)
Yeah, I feel like we talk about in investing the danger of home buyers a lot where you have the biggest portion of your portfolio in your domestic market and in the UK, I think we might all secretly think we’re American because everyone seems to be a lot more attracted to those S&P big name stock.

Alexandra Jackson (02:56.79)
I think that’s right. That’s, you know, you can see that that’s happened over the last, you know, however many years to the extent that people have these huge allocations to US markets and tiny allocations to UK. So for me, that means actually, if sentiment did change, even quite a small amount, you could see, you if you saw a little shift of how people feel towards the UK, then even a tiny move from the kind of 67 % allocation to the US back into the 4 % in the UK could actually materially impact prices and therefore returns in this market. to me, it highlights the opportunity there. And it’s not usual for mid caps also to underperform for this period of time as well. When we look specifically in the UK, when you look kind of through cycles, most of the alpha from the UK equities comes in the FTSE 250. So again, it’s unusual to see mid caps underperform. And I think that sets it up as a really interesting opportunity.

Holly Mead (03:54.456)
So people who are out there thinking the UK is a boring place to invest, let’s prove them wrong. Talk us through a couple of your biggest holdings.

Alexandra Jackson (04:03.052)
Okay, well, you’ve framed it interestingly because I was going to give you some really boring holdings. When I looked at my top 10 holdings, I thought, gosh, some of these are really, really boring businesses. And there is absolutely nothing wrong with that. So we own a business called Pranswick. They make sausages, they make chicken to go into supermarkets. So a lot of the pork products that you’ll buy in the supermarket, chicken, know, the McDonald’s bacon, for example.

Holly Mead (04:31.0)
Day of the year so far as we record. Nothing boring about a sausage on a hot day. There you go.

Alexandra Jackson (04:36.494)
And Kransuk had great numbers last week. So, you know, it’s not a kind of hot AI stock, but it’s one of those reliable compounders with, you know, nice structural growth, great pricing power, which they kind of prove out year after year after year. They are amazing at investing in their business and driving profit through that. So yeah, it’s not the most interesting business, but it’s…

performed incredibly well. There’s another quite boring business called Volution. They make bathroom fans. So again, perfect for today. We’ll all be switching our fans on later. Again, a kind of business with great pricing power, lots of regulatory drivers because air quality, avoiding mold in particularly in social housing is a huge driver of demand for them at the moment. They’re geographically diversified. It kind of ticks a lot of our boxes as well. So not again, not the most interesting business. But then we’ve got some we do have some AI plays.

So that’s kind of the only topic that people seem to want to talk about on a global level at the moment. So in the UK, we don’t have the hyperscalers, we don’t have the LLMs directly. So you have to play the AI trade in a slightly different way. For us, those AI names are kind of hidden in the industrial sector rather than the tech sector. There are a couple in the tech sector, but again, they’re a bit different. So again, we’ve got large holding in Halma, which is a

very diversified industrial business. focus on small but very critical systems that you would only really notice when they go wrong. So gas leak sensors, water leak sensors, fire alarms in commercial businesses, those kinds of things. And they also have a division which feeds into data centers. So that’s one of those businesses that has really caught the AI trade.

Holly Mead (06:23.52)
often do you add new names to the portfolio or cut stocks? What’s something you’ve added recently?

Alexandra Jackson (06:28.91)
We’ve added a few things recently, again, something in another industrial that is accessing the AI trade, so a business called Renishaw, which is a FTSE 250, used to be majority family owned, actually I think still probably is majority family owned, but is listed on the public markets. If you’re making the tools that make semiconductor chips, the manufacturing has to be so precise because you’re working at the kind of nanometer level. I mean, it’s just, it’s absolutely tiny. And Renishaw make…

the measurements, some of the measurement systems that enable those tools to manufacture at that level of specificity. So it’s again, it’s quite niche, but once you’re kind of designed into a semiconductor manufacturing process, you’re probably not going to be designed out. So again, you’ve got great pricing power, you’ve got this incredible structural growth driver behind you. Yeah, it’s done incredibly well so far this year, again, kind of picking up that AI trade. This isn’t a portfolio that you kind of churn, I think.

In small and mid cap, which is where the fund is focused because of our sort of process, often you see people trading in and out of names quite quickly. Our goal is to find compounders a bit like Kranzwick and Volution that generate organic growth and are able to then use their own cash that they generate to invest back in the business and drive more organic growth. So the goal is to

find those great businesses before everyone else does, buy them at a sensible price and then invest kind of along the way.

Holly Mead (08:00.174)
does that process look like? How long will something sit on your watch list before you buy?

Alexandra Jackson (08:05.486)
Yeah, I mean, we’ve had stuff on the watch list for 10 years and some of them, just, they never either come down to the valuation point that we want or, you know, the catalysts just never quite add up, you know, because we’re, we’re kind of trying to find these businesses that can turn into those classic compounders. So we’re looking for the hallmarks of that. And so if the business doesn’t demonstrate those, then we’re, you know, we’re probably not in.

Holly Mead (08:28.514)
Ten years though, mean, company’s coming in for a meeting every year like, this will be the time.

Alexandra Jackson (08:33.998)
Well, actually, Halma was one where we’d, you know, it’s such a high quality business. it’s a, you know, it’s one of those kind of dream stocks, but I’d always felt, you know, even for me, and I’m not the most valuation conscious manager in the market, I’m kind of valuations like the third piece for me. But even for me, Hamel was too expensive. And so I had to wait till the market had a one of those kind of indiscriminate sell offs. And those are great times for an investor like me who

you know, who likes quality growth companies because everything gets sold off. And at that point, then you can buy businesses that you never thought you could afford before when they’re when they’re all on sale.

Holly Mead (09:12.18)
Yes, that is literally the equivalent of you hitting the sales.

Alexandra Jackson (09:15.072)
Yeah, it’s amazing. And then you, you know, you kind of reap those rewards for years and years. So sometimes when you have those indiscriminate sell offs, then the fund won’t bounce out of it really, really quickly, because we are trying to upgrade the quality of the portfolio. And sometimes it’s the lower quality things that will bounce hardest out of any sort of crisis. But you reap the returns of that over the next, you know, quarters or years. And that’s the point of the fund, I guess it’s a longer term, kind of compounding type strategy rather than

in out, you know, this is the hot stock of the moment I’m in it, now I’m out of it.

Holly Mead (09:49.774)
Is it hard sometimes not to get swept up in that though when the whole market is and there’s talk of bubbles and whatnot and you have to have those sort of reality check conversations?

Alexandra Jackson (10:01.128)
Yeah, definitely. There’s always a kind of theme and at the moment the theme is AI trade and space to a certain extent as well. That’s become quite spicy in the UK. But for us, the process is very strong. We followed it for so many years. We’ve played out that kind of quality, up-weighting playbook. We’ve done that so many times and seen how it benefits returns over the next few quarters.

I guess as I go on, the longer and longer I run this fund, the more calm I feel about just continuing to execute that process rather than worrying that I missed the thing that has 3x’d because it may not be, you know, it doesn’t fit our process. That’s why we won’t own it. you know, yes, frustrating watching things 3x from the sidelines, but as long as we stick to the process, I that’s the most important thing. And then we can explain to our clients why we own everything and, you know, not surprise people by having things in the portfolio that suddenly they go,

I didn’t think I was going to end up with this kind of asset.

Holly Mead (11:04.042)
Yeah, that makes sense. Is there anything you would love to invest in but you can’t because it doesn’t fit the process or it might just be too big?

Alexandra Jackson (11:13.23)
Yeah, so size mainly probably is the restriction for me. So the fund is set up with as few restrictions in place as possible. So very, very few parameters around kind of index. So I can own businesses that are listed on AIM, for example, anywhere they’re listed in the UK, I can own them. From my kind of global days, I see that having as few restrictions as possible is the way you give yourself the best chance to generate alpha for clients.

We wanted to set the fund up like that. Having said that, we tend to not buy names that are kind of at the top end of the FTSE 100. There are lots of ways that our clients can access that. You don’t necessarily need an active manager whose skill set supposedly is in mid-caps to buy those names for you. Given that large caps have outperformed so much over the last couple of years, yes, I have found myself kind of looking a bit longingly sometimes at some of my peers who are happier to kind of stray into the upper echelons of the FTSE 100.

But actually some of the strongest performers in the fund are names that have kind of followed the process. So we bought them when they were FTSE 250, they’ve demonstrated that compounder status and now they’re, you know, kind of bottom half of the FTSE 100. And the important thing for me is that I’m not then forced to sell them. So it works, it works both ways for us.

Holly Mead (12:29.996)
I mean, that seems like a good point to ask you what is your best ever investment and whether that predates this fund or not.

Alexandra Jackson (12:37.038)
Oh, predating the fund. Oh, I don’t know if I’ve thought about that. I would say the things that I can control. when I look at the fund kind of over the last decade, there are a couple of names. So one of the names has been bought out. so that was a huge driver of the return on that. Another one is Diploma, actually, which I still own in the fund now. And I think it’s the second or third biggest contributor to the return of the fund over the last decade. So that’s an amazing.

accolade, think, for a business. might have done over that time period. It’s definitely gone from the FTSE 250 into the FTSE 100. They’ve generated this incredible levels of organic growth, cash conversion, dividend. It kind of hits all the boxes for us and has a kind of AI story in that they help build out the physical infrastructure for AI in data centers.

Holly Mead (13:08.75)
3X.

Alexandra Jackson (13:34.324)
So, yeah, diploma has been an incredible success story.

Holly Mead (13:39.362)
What is your worst ever?

Alexandra Jackson (13:41.006)
Investment. Can I give you a personal one? Yeah. I think you’re quite a good therapist. So in kind of 2021, a friend of a friend was raising money for an online clothing rental business, which I was using as a customer. I absolutely loved it. You’d get, you’d rent kind of three pieces of

Holly Mead (13:44.918)
We’d love it if you would.

Alexandra Jackson (14:05.29)
of work wear, really high-end work wear every month and it was perfect for me because I don’t really like spending that much money on clothes but I like to wear them. And then when this opportunity came around to offer equity into the business I took it and then obviously Covid meant that people weren’t really renting so many clothes to get out for and so sadly, very sadly, the business folded and so I lost all the money which was know traumatising in many ways because I lost my access to the lovely clothes and…

the money.

Holly Mead (14:35.79)
It’s really where I’ve been sorting the wound there, isn’t it? When you lose it personally. Yeah, no, I’m happy to have helped with you. I mean, I suppose that brings me on to, obviously we know what the fund does, but what about you personally? What kind of investor are you other than a Sartora one?

Alexandra Jackson (14:39.372)
It’s good to talk about it though.

Alexandra Jackson (14:52.526)
I’m not going to do that again. I think, boringly, kind of quite similar to the way I run the fund. So, well, actually, my biggest personal investment is the fund. That’s important to me. And then I also own lots of other Rathbone funds because I kind of know the managers. I trust them. I see their process. see how…

Holly Mead (15:13.294)
And also if they disappoint you, you don’t even have to go to the AGM.

Alexandra Jackson (15:16.974)
I just tap them on shoulder and give them hell. And we’re all kind of invested in each other’s funds as well. there’s an element of that on the desk every day anyway. And then I have, it’s mostly equities, some cash on hand for kind of six months of expenses just in case. And then, yeah, a kind of diversified range of mainly active funds. I’d love to own more UK active funds, but…

I’m already pretty geared into that. my other choices are kind of global or regional specific or thematic funds.

Holly Mead (15:54.476)
How do you find that sort of switch from the day job investor to, I mean, I just don’t think I’d want to load up a portfolio in my spare time if that’s what I was saying.

Alexandra Jackson (16:03.256)
Very little. I do very little of that. You just kind of set it going once a year in Issa season and then let it go. I find that’s the best way to do it and try not to think about it too much because I prefer the day job.

Holly Mead (16:17.966)
And you have children, I think. Yes. you, do they invest? you try and get them interested? Yes.

Alexandra Jackson (16:23.554)
They get really many boring lectures about the value of compounding. Again, I try and describe to them how magic that is, interest on interest, it’s free money. You’ve got to do all of that. They own, they’ve got some junior ISAs, they own my fund as well in that. So again, that kind of piles on the pressure.

Holly Mead (16:44.908)
be the biggest burn if when they get to 16 they sell your fund specifically.

Alexandra Jackson (16:49.442)
Well, if that means if they need to do that to maintain a balanced portfolio, then I’m fine with that. So yeah, but they’re interested in the company. So if I can bring it to life for them. So the closest shop to our house is Greg’s. We used to own that in the fund. So we would go in there and we would talk about the pricing architecture and doughnuts. mean, really it’s too funny.

Holly Mead (17:11.31)
So let’s talk about sort of the macro world a bit more. Obviously the funds UK focus, but we’re in that kind of world now where it’s all intermingled. What are you expecting from the next 12 months? It’s been a hairy few months, arguably.

Alexandra Jackson (17:26.475)
Yes, can’t believe it’s only May still. I think it will continue to be this kind of pull between the incredible, know, capex numbers coming out of particularly out of the US around the AI trade balanced against the impact on energy prices, the whole kind of energy complex from the Iran war, how that for me, it will be important how that plays into large caps versus mid caps.

And that’s particularly impacted by yields. So for me, guilt yields are a very important factor to watch. So then that leads you into the kind of domestic political environment. Great to see yields have been coming in a lot recently. Those are the sorts of things that I’ll be watching. People seem very keen to not miss out on the benefits of all of this expenditure on AI and how that will kind of trickle down through the whole economy.

Holly Mead (18:17.304)
feeling generally optimistic, pessimistic or not.

Alexandra Jackson (18:21.582)
I try not to be nonplussed. I think I’m more optimistic than I have been in a while. The UK sort of political, the noise is unhelpful, but actually, particularly in the last couple of weeks, the numbers coming out of my companies have just been incredible. So they are very operationally fit. They are totally used to dealing with uncertainty. Now, as you

of reference, it’s been rolling uncertainty for a really long time now in the UK. So those companies who are succeeding and who are making it work are really very good at being nimble and operating through that environment. yeah, the numbers I say that they’re posting are just fantastic. then when you layer on top of that, quite a high level of &A, global companies, PE firms coming in to bid for UK listed businesses, pretty chunky premiums.

Normally the premium you’d expect to get is around 30%. At the moment, the premium is closer to 40%, which I think is illustrating the value on offer in the UK. And the average deal size is higher than normal and the number of deals is higher than normal. So you’ve got loads of external investors, know, long-term patient capital, strategic buyers, lots of different groups of investors saying there’s an incredible opportunity here. So those kinds of things combined actually make me feel quite positive.

Holly Mead (19:47.438)
Yeah, I don’t think we hear a lot of positivity in the minute. like that. I mean, it sort of takes me back to something you said earlier about how little a lot of investors have in the UK and obviously that’s something the kind of government has referenced trying to think of ways to sort out. Do you think we’ll see any progress there? you know, does more need to be done to incentivize that capital to come into the UK?

Alexandra Jackson (20:10.762)
I mean, if there was a silver bullet, it would have been hopefully fired by now. So I think it’s probably a lot of little things. hear much more positive, know, more positive noises coming out of the government around that. You know, almost every day there’s another kind of initiative or something like that. again, I’m kind of hopeful, but you don’t necessarily need a reawakening or a readjustment. Again, it could be quite small because of, you know, where those allocations have got to. It could really be quite a small change in sentiment that

that materially lifts prices and then that kind of momentum begets more momentum.

Holly Mead (20:46.754)
So this fund, you’ve been at the helm for eight years now, global investing before that. since you started out in the industry, what are the biggest things that are different now that have changed in that time for you?

Alexandra Jackson (20:59.854)
started around 20 years ago. This is my 20th year, I think, at Rathbones and in the industry. So a lot has changed, particularly in my part of the market. I think it’s around kind of the rise of passive investing. I guess the corollary of that is the increase in concentration. So we’ve talked a little bit about how investors are quite concentrated in the US, but within that, very constant. They would be naturally very concentrated into a few of the mega caps as well. So there’s a lot of concentration risk as a result. For me, that kind of reaffirms the

the idea that active management, particularly in those sort of less research parts of the market like UK mid caps, can really add value still and act as a nice hedge against some of those concentration risks which is really important.

Holly Mead (21:40.822)
about the future of active management because passives and now AI have become so popular.

Alexandra Jackson (21:48.33)
Yeah, I mean, the AI is the other thing that definitely has changed things. we are, you know, we’ve been working on our, you know, kind of rolling out AI into our front office and into all our investment processes. And actually, that makes me really excited because the amount of work we can do, the amount of stocks we can assess at kind of a high level has just gone through the roof. So I feel like we can get through more potential opportunities. We can discard things quicker. you know, the kind of breadth of

of assets that we can look at is higher. I think I’m pretty excited about Active Management. It’s just going to change the things that you have to look at. It will change the fundamental research process, which is something that I think this industry is extremely good at doing and working through.

Holly Mead (22:36.45)
And I suppose one other thing I want to ask you about how it’s changed is that the first time I met you was, it was over 10 years ago. And the reason I was interviewing you was because you were running a fund with a female colleague. And we had worked out that that was the only fund Dom was sold in the UK to be run by two women. what a spectacle you were.

Alexandra Jackson (23:01.134)
Thank you.

Holly Mead (23:02.734)
Do you think there is more female representation in the industry now?

Alexandra Jackson (23:07.598)
It’s not moved tons according to the kind of the last time I looked at the headline data. I think it’s still about 12 % of fund managers in the UK are women. So it’s not moving at the pace that you’d ideally want. There are a couple of other dual run female funds now that are out there and they’re brilliant. So, but you know, think, you know, a mixed team is great. All female teams are great. They’re all, you know, as long as you’re getting that cognitive diversity within a team.

However that presents itself across gender, across background, I think that’s the dream. There are more programs now to encourage more, well not just to encourage more women to become investors, but then when they’re in that kind of early part of their career to actually really accelerate and then take the helm on a fund, because I think that’s probably the tricky bit. And so it’s lovely to see structured programs aimed at that.

Holly Mead (24:00.718)
But also like it on the record that neither of us have aged today. So the one thing we always like to ask everyone is what is a book that you recommend to people who come up to you at a party, definitely not speaking from my own experience this weekend just gone, and ask you for a recommendation of a book to learn more about money or investing.

Alexandra Jackson (24:05.688)
Ha

Alexandra Jackson (24:16.654)
You

Alexandra Jackson (24:26.03)
So it’s not a book, but I have a podcast that I listen to quite regularly, which is called Business Breakdowns, which is they, every week or every time they do the podcast, they focus on a single business. look at, kind of the way I would approach fundamental research and they look at it kind of from the ground up, why it started, who runs it now, what the, you know, what sort of point of the business is, and then they’ll go through the, you know, more of the kind of business model as well. And it’s a great deep dive into businesses.

that I maybe wouldn’t come across in my day job looking at predominantly UK mid caps. So it’s really interesting because there’s always something you can learn and compare. Yeah, that’s my favourite one.

Holly Mead (25:06.934)
it. So I’m just going to round off by asking for anyone who’s still sitting on the fence at this point, why should we invest in your fund?

Alexandra Jackson (25:15.182)
So the point of the fund is to offer access to a diversified range of 50 to 60 names that we think are the highest quality growth names in the UK, giving you access to some world-class businesses trading on a postcode discount.

Holly Mead (25:32.13)
Well, thank you very much for joining us. And thanks for joining us too. If you enjoyed this video, please do like it, share it, and be sure to follow us at Good Money Guide for more.

Alexandra Jackson (25:33.518)
Well, thanks for having me, Holly.