August was another strong month for European equities, indeed the index has risen every month since its decline in January. Once again, the technology sector led the way, outperforming the index by 5%, followed by utilities, which rebounded, and healthcare. On an absolute basis only the consumer discretionary sector underperformed with luxury goods under significant pressure. The latter was clearly driven by the rhetoric out of the Chinese leadership on the potential for higher taxes to create a more even society, amid a background where the regulation of Chinese corporates continues to intensify. Yields rose over the month and European headline inflation data surprised on the upside to a near decade high of 3% year-on-year, driven by energy and food prices in particular. PMI data saw some very small slippage with the manufacturing reading down 1.3 to 61.5 and services down 0.1 to 59.7, both in very clear expansion phases and indeed second quarter Eurozone GDP saw 2.2% expansion quarter-on-quarter. The much anticipated Jackson Hole Symposium saw Fed Chairman Powell reiterate the likelihood of tapering commencing around the turn of the year.

The fund enjoyed a strong August after a poor July. Both sector and stock selection contributed positively, with financials and consumer discretionary leading the way. ASR, the Dutch insurer, was the leading stock contributor over the month and we still see significant upside here. Further cost measures aided by continued digitalisation should keep the combined ratio at attractive levels and we should hear more on this at its capital markets day later in the year. Strong cash generation and a shareholder-friendly distribution policy has added to its attractions. Elsewhere we took a new position in Deutsche Telekom, where the positive outlook for T Mobile USA (which continues to enjoy a 5G lead and synergies from the Sprint combination) combined with a very solid German business, remains highly attractive. Meanwhile further disposals of the Dutch business and Tower assets will enable further expansion of the T Mobile USA holding towards the targeted 50%+ level. The most positive news for the fund over the month was Justin Macgregor joining the team, an experienced analyst with a good amount of European experience; I am in no doubt he is an excellent addition.

Data shown net of fees, net income reinvested. Please note that fund performance is shown against the MSCI Europe ex UK NR 12pm adjusted. Data for the period 5 November 2001 to 31 December 2012 is shown against the FTSE Eurofirst 300 ex UK TR Index. Performance of other share classes may vary and is available on request. Where shown, monthly returns table shows compounded discrete monthly performance. During the period  5 November 2001 to 7 May 2003 the performance record is based on the pre-existing share class that had a higher management fee.

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. 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 investing in companies which employ practices that contribute to significant environmental and social harms. The Investment Manager focuses on the incremental direction of travel that a company is on and considers whether a company is contributing to or undermining the UN Sustainable Development Goals when assessing its environmental management and social impact. In particular, the Fund seeks to avoid companies with poor performance in relation to carbon emissions, diversity, wages and treatment of employees. 

In addition to considering Environmental Social and Governance (“ESG”) key performance indicators, the Fund applies exclusions to support the avoidance of harms. In order to support the reduction of adverse environmental impacts of the Fund’s portfolio, the Investment Manager excludes: 

1. any company which derives greater than 5% revenue from thermal coal mining; 
2. any company which derives greater than 5% revenue from oil sands; 
3. any company which derives greater than 5% revenue from arctic drilling; 
4. any company which derives greater than 5% revenue from hydraulic fracturing; and 
5. any company which derives greater than 35% revenue from coal-based power generation. 

These selection criteria may not be disapplied or overridden. 

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.   

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 Europe ex UK NR 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.