The objective of the JOHCM UK Dynamic Fund is to achieve long-term capital growth. The Fund will aim to achieve this objective mainly through investments primarily drawn from companies listed on either of the two primary markets of the London Stock Exchange: the main market and AIM. At least 75% of the Fund’s assets will, at all times, be invested in equity securities of companies domiciled or exercising a predominant part of their economic activity in the United Kingdom. On occasion the Fund may utilise this position to invest a proportion of its assets in equities listed on a recognised exchange outside the UK. Investment will be made primarily in equity securities which are readily marketable, but investments will also be made in equity securities of smaller companies which can be more lightly traded. The portfolio is likely to be fairly concentrated with the Fund typically holding equity interests in between 35 and 50 different companies.

Divergences in financial markets, across or within asset classes, are a fact of life. Excess returns in financial markets are typically made when new divergences emerge. Divergence is defined as ‘the act of moving away in thought, or actions, in different directions’. With that in mind, it is worth observing the steadily accumulating evidence of precisely this between the UK and the US. The US consumer has run down their excess pandemic savings, while in the UK, the surplus is north of £200 billion. UK PMIs are at the top of the G7 while slowing down in the US, with the latter also seeing lingeringly persistent inflation when it is nearly certain that it will be sub-2% domestically by June. Economics do not drive stock markets, of course, but they do inform them. The UK is extraordinarily cheap by any reasonable measure. The US is best judged by others who operate in that market, but with the relationship between the two having recently hit a near 50-year high, it is certainly not hard to argue the elastic is incredibly stretched. Markets are driven by the marginal buyer or seller, and the impact on price formation, sentiment, and momentum can be swift – Japan being a powerful recent example. Time will tell if the UK follows a similar trajectory, but the marked pick up in international interest, albeit from remarkably depressed levels, suggests it is, at the very least, a credible possibility. Given the nature of JOHCM UK Dynamic's assets, it should be a strong and disproportionate beneficiary should that eventuality arise.

The Fund underperformed marginally over the month. Most of this was attributable to the zero ownership of Astra Zeneca, which squeezed higher on decent underlying results, while Convatec gave back some of its gains from earlier in the year on a new US regulatory development which may impact the coverage and pricing determinations for specialist foot and leg ulcers. Investors may recall we had pre-emptively reduced the position size here, primarily on valuation grounds and that helped moderate some of the impact.

Positive contributions meanwhile came from the continued strong performance of Barclays, which still sits at a substantial discount to tangible book value despite decisive, returns-focused management action and a generous shareholder returns programme. WPP and NCC also chipped in, the latter of which held an encouraging capital markets day for its encode business, while non-ownership of expensive, over-owned assets such as RELX, Diageo and Experian were further modest tailwinds.

Corporate activity in the UK continues to accelerate, with the marked undervaluation proving fertile territory for predatory financial and strategic buyers alike. Earlier in the year, an approach for another JOHCM UK Dynamic asset, Direct Line, fell away, but FTSE 100 miner Anglo American was the recipient this time around, with a putative bid from industry rival BHP. Given the strategic attractiveness of its high quality, growth assets and the rising regulatory and geological barriers to entry, we would be very surprised if wider interest, and a significantly more interesting price, was not forthcoming.