Markets were particularly strong in the second half of December benefitting from the usual ‘Santa Claus rally’. Over this period we saw some fears over the Omicron variant subside, with indications that this new variant may not lead to an increase in hospitalisations despite the high case numbers. A wide number of sectors showed strength with Industrials, Energy, Materials, Staples, Healthcare and Financials all performing as well as or better than the headline index. 

In the US, the FOMC doubled the pace of tapering to $30bn per month from January, with a possible completion date in March, whilst the dot plot shifted to three hikes in 2022. The US yield curve continued to flatten in December and real yields remained close to the lows. We did, however, see some upward move in the ten-year yields in Germany which rose 17 bps. As expected the ECB see the pandemic purchase program (PEPP) completing by March and the asset purchase program (APP) rising from €20bn per month to €40bn in Q2, before falling to €30bn in Q3. The ECB staff macro forecasts now predict 4.2% GDP growth in 2022 and 2.9% in 2023, whilst HICP inflation is expected to be 3.2% in 2022. In the US, on the fiscal side, President Biden’s Build Back Better plan failed to gain a majority in the Senate. The global manufacturing PMI remained at a similar level to the two previous months at 54.2, but new orders, output and employment were all stronger, hopefully highlighting that supply chain issues are peaking. 

December was a strong month for the fund driven by stock picking. Financials led the way by some margin, benefitting from the strength of outlook for returns and particularly shareholder distributions at Unicredit as disclosed at its capital markets day. Meanwhile Societe Generale performed well and remains the fund’s largest position in the sector. Utilities have had a lacklustre year overall but benefitted from the strength in Veolia, the strongest performing stock for the fund in December and for 2021 as a whole. Veolia remains well placed with the pending completion of the Suez takeover and a valuation which still fails to take into account the attractive prospects ahead. Elsewhere CRH, Eiffage and Carrefour all contributed well. 
 

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.   

Although the Fund may invest 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 not currently 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. 

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 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.