The investment objective of the Fund is to achieve long-term capital appreciation through investment in a diversified portfolio of Asia ex-Japan Small and Mid Cap equity securities. The Fund aims to achieve its investment objective primarily through investment in equity securities of companies with a small or middle market capitalisation all of which will be domiciled or exercising the predominant part of their economic activities in the Asia ex-Japan region. The Fund will generally invest in stocks of companies with a market capitalisation of less than US$6 billion, with trading liquidity a key consideration.

Asian equities closed out the year in December on a positive note but the performance was mixed, with India, Taiwan and Korea tracking global equities higher while China/Hong Kong and most of ASEAN fared less well. The sell-off in global markets in the first half of the month on the resurgence of Covid-19 cases and concern about the US Federal Reserve embarking on a tighter monetary policy as high inflationary pressures persist were brushed aside as markets climbed the wall of worry to end the year higher. 

The Fund underperformed in December, dragged down by our underweight stance in Korea and Taiwan which posted strong returns and overweight position in China/Hong Kong and ASEAN which performed poorly. Our large holding in India helped offset some of the under-performance with several of our stocks seeing good gains. We will maintain our large underweight positions in Korea and Taiwan as they are more exposed to the technology sector which may have seen peak cycle earnings and face cuts to earnings estimates as demand cools after two years of strong growth and the US Fed tightens monetary policy, just as supply constraints ease. We are more constructive on ASEAN and China/Hong Kong going into 2022 as these economies are not grappling with high inflationary pressures and for ASEAN, nor current account deficit issues, and with sufficient slack in their economies, tightening of monetary policies is further down the road for them. Indeed, China is like to ease monetary and fiscal policies as the economy is vulnerable to a sharp growth deceleration. We remain positive on India and will keep our overweight stance as corporate earnings prospects look bright with the economy poised to embark on a multi-year capital expenditure upcycle after several lean years and support from the government’s various structural reforms undertaken in the last few years. During the month, we added to our holding in Cisarua Mountain Dairy in Indonesia. 

Founded in 1993, Cisarua Mountain Dairy (CMRY) is a leading producer of premium dairy (66.8% of revenues as of June 30, 2021) and premium consumer foods products (33.2%) in ambient, chilled and frozen formats in Indonesia. The founder and management team are driven to create tasty and nutritious protein products for consumers. The company’s premium dairy portfolio comprises yoghurt and milk products sold under the brand “Cimory” while the premium consumer foods portfolio consists of a range of ready-to-cook and ready-to-eat products such as sausages, chicken nuggets, luncheon meat and seafood products sold under various brand names. 

CMRY’s premium products have clearly resonated with Indonesian consumers as its sales for the dairy and consumer foods segments grew at compound annual growth rates from 2018 to 2020 of 34.2% and 25.5% respectively, surpassing that of the dairy and processed meat markets’ growth of 10.2% and 4.0% respectively (according to Euromonitor) by a mile.

Furthermore, for the first half of 2021, its dairy sales surged 130.5% compared to the corresponding period in 2020 and its consumer foods sales jumped 89.6%. The company’s competitive edge include its proven ability to create high quality, innovative and differentiated products; savvy marketing with the embrace of digital media and social media to reach its target audience; establishment of its own cold-chain logistics and warehouse network; and its multi-channel distribution platform comprising modern trade (eg. hypermarkets, supermarkets, minimarkets), general trade (eg. small mom and pop stores, wholesalers), food services industry (eg. restaurants, hotels, cinemas), Miss Cimory agents who sell direct-to-consumer and door-to-door, and eCommerce. With Indonesia’s dairy and meat consumption per capita among the lowest in the Asian region, we believe CMRY is well-placed to ride the structural growth opportunity in the years ahead.     
 

JOHCM/MSCI/Bloomberg/Lipper.

Data shown net of fees, net income reinvested in GBP terms. Benchmark: MSCI AC Asia ex Japan Small Cap NR 12pm adjusted Performance of other share classes may vary and is available on request. 

Past performance is no guarantee of future performance. The value of an investment and the income from it can fall as well as rise as a result of market and currency fluctuations and you may not get back the amount originally invested. Investing in companies in emerging markets involves higher risk than investing in established economies or securities markets. Emerging Markets may have less stable legal and political systems, which could affect the safe-keeping or value of assets. The Funds investment include shares in small-cap companies and these tend to be traded less frequently and in lower volumes than larger companies making them potentially less liquid and more volatile.

Amongst other characteristics, the Fund promotes environmental and social characteristics and invests in companies that apply good corporate governance.  JOHCM Funds (Ireland) Limited, the Fund’s manager, has therefore categorised the Fund as meeting the provisions set out in Article 8 of EU Regulation 2019/2088 on sustainability-related disclosures in the financial services sector (“SFDR”).  

J O Hambro Capital Management Limited (“Investment Manager”) seeks to avoid sectors which contribute to significant social and environmental harms. The Investment Manager uses ESG performance indicators to assess and monitor its investments as well as within the investment decision-making process. 

In addition to considering ESG key performance indicators, the Fund applies exclusions to support the avoidance of harms.  In order to reduce the adverse environmental impact of the Fund’s portfolio and in particular its contribution to climate change, the Investment Manager excludes investments in any companies which derive 10% or more of their revenue from thermal coal mining, coal-based power generation, oil and gas extraction and production, or from unconventional oil and gas. Also excluded are companies which derive 10% or more of their revenue from activities which contribute to social harms, in particular, gambling, weapons and tobacco. These selection criteria may not be disapplied or overridden by the Investment Manager.    

See full details on the implementation of the exclusions below.    

The Investment Manager recognises that ESG factors can create risks and opportunities for companies and looks for companies who may benefit from this by incorporating ESG factors into their analytical framework and portfolio construction. 

In order to measure and monitor the environmental characteristics of the Fund, the Investment Manager will review the carbon footprint of the portfolio and environmental data published by its investee companies.  For the social characteristics of the Fund, the Investment Manager will review whether investee companies have implemented appropriate policies and structures to support sustainable business practices. 

Although the Fund may invest in companies which engage in economic activities that contribute to an environmental objective within the meaning of the EU’s Sustainable Finance Disclosure Regulation (SFDR), the Investment Manager is currently not in a position to assess the proportion, as a percentage of the Fund’s portfolio, of investments in environmentally sustainable activities which are aligned to the EU’s Taxonomy Regulation (TR) (Regulation (EU) 2020/852) and amending Regulation (EU) 2019/2088.

This is due to a lack of reliable, timely and verifiable data for the Investment Manager to make a full and accurate assessment of the investments of the Fund against the TR’s Technical Screening Criteria in respect of climate change mitigation and climate change adaptation. It is also important to note that given the geographical focus of the Fund’s strategy, companies within the investment universe might not be under any obligation to provide the data required under EU legislation.

As a result, the Investment Manager is unable to determine whether the underlying investments in  the Fund contribute to climate change mitigation and/or climate change adaptation,or whether the Fund has investments in economic activities that qualify as environmentally sustainable pursuant to the TR. As such, it has been determined that, 0% of the Fund’s investments are in economic activities that qualify as environmentally sustainable under the TR.

The Investment Manager is keeping this situation under review and will revisit the TR disclosure requirements once sufficient data is available.
 

Investee companies must follow good governance practices. This requires investee companies to adhere to minimum standards in various areas including sound management structures, employee relations, remuneration of staff and tax compliance. The Investment Manager is a signatory to the UK Stewardship Code 2012, is requesting to be a signatory to the UK Stewardship Code 2020 (together the “Code”) and is a signatory to the UN Principles for Responsible Investment (the “UNPRI”). As a signatory to the Code and the UNPRI, the good governance practices of investee companies are assessed by the Investment Manager prior to making an investment and periodically thereafter. 

The Fund uses the MSCI AC (All Country) Asia ex-Japan Index for performance fee calculation purposes only and it is not, nor is it intended to be, aligned and/or consistent with the environmental and social characteristics promoted by the Fund.