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Marlborough’s AAA-rated Rainbird: prepare for interest rate hikes

by Robert St George on Jan 30, 2014 at 10:33

Despite the width and depth of the portfolio, he stresses that he is a buy and hold investor. Marlborough Extra Income’s portfolio turnover rate is 35%. ‘Quality is key because we’re running a low-risk fund,’ he said.

Rainbird additionally argues that excessive churn impairs income generation. ‘If you jump in and out, how will you benefit from rising dividends?’ He suggests Next as a case in point. Marlborough Extra Income first bought the stock when it traded around £18 in 2009; now the retailer’s share price is north of £60.

‘It would have been very easy to jump out and take a handsome profit,’ Rainbird acknowledged. However, he would then have missed the special dividend that Next announced at the start of January; analysts at Peel Hunt have forecast that Next will yield almost 6% for 2015.

This focus on the long term informed his refusal to dump Shell after its profit warning last week, which knocked 2% off its share price in a day. ‘We don’t take kneejerk reactions,’ Rainbird asserted, although he confirmed he will be monitoring progress under the new chief executive. ‘We’re going to have to see whether there are management issues or it is a one-off like they say.’

Elsewhere in Marlborough Extra Income’s portfolio,  a growing theme is the potential for mergers and acquisitions. A top mid-cap pick is TalkTalk, which Rainbird notes is now competing with – and undercutting – Sky in the online TV market.

It has now emerged as a possible takeover target. ‘We weren’t thinking of consolidation when we bought it, but that could now be an interesting by-product.’

Similarly, Rainbird is watching Vodafone with interest. The telecoms titan is the largest position in Marlborough Extra Income, and Rainbird plans to reinvest the proceeds he receives from the Verizon disposal in the company.

‘We think the rump of what’s left after Verizon Wireless is potentially undervalued.’ And he believes that that value could be unlocked by more corporate activity, potentially involving the breakup of the conglomerate.

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