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.

The Fund underperformed the index in September. It was a very odd month and end to the quarter, with clear signs of change emerging in the market. Liquidity in shares at low prices was non-existent, implying prices were transitory or not real for any investor of size and M&A activity picked up over the period, with UK targets including G4S, William Hill, SDL and KKR's investment in Great Portland. 90% of the Fund’s quarterly underperformance came in the two-week period that started with news of prime minster Johnson’s internal market bill. There were no negative stock specific news announcements during this period. 

In fact, Morrisons (the Fund’s third largest active position) reported interims during this period which showed Q2 like-for-like sales at a possible all-time high of 11.1%, beating analyst expectations of c. 8.0%, and ahead of consensus profit estimates. Yet shares fell to new post-Covid-19 lows relative to the benchmark, ending the month down an incredible 10% relative to the benchmark. An absurd reaction but by no means unique in September.

Shares in all four of the Fund’s real estate holdings (Crest Nicholson, Urban & Civic, St Modwen and McCarthy & Stone), which account for c. 7% of absolute capital, were either flat or down versus the benchmark. Valuations here remain at a 25% discount to book value (at least) despite record rises in house prices and mortgage volumes. 

Shares at Aggreko fell 22% relative to benchmark on no news other than shocking analytical work from a major US bank. The analysis valued the shares using discounted cashflows but with a 48% cash conversion to perpetuity implying an ever-expanding capex programme but with returns on this capex at below the cost of capital. This makes no economic sense and would lead to short careers for management. Normalising this cash conversion to 100% would add 225p to the analyst’s target price of 400p, implying 69% upside to the share’s month-end closing price.

Interims from QinetiQ, a top ten active position for the Fund, were positive across the board. The return of management guidance and a strong order intake led to consensus upgrades. The suspended final divided was also re-instated. Despite all this, shares ended down 3% relative to the benchmark for the month.

Possibly the only bit of positive Covid-19 related news for the Fund was that TT Electronics secured a contract to build iAbra’s Virolens, a potentially ground-breaking Covid-19 screening device. Shares rose 42% on the news that, if the device is proven to work, indicative customer orders would lead to associated revenues of £280m for TT Electronics, compared to Group revenues of £478m in FY19. A sharply worded article in the Financial Times quickly doused these hopes leading the share price gains to unwind. There still remains a chance this technology proves to be successful. Provident Financial’s shares unwound all their relative gains made in the previous month following strong interims despite no news. 

Share prices cannot ignore good news for ever. This is evidenced by the share purchases undertaken by the management teams of the Fund’s holdings over the quarter, with notable transactions including Aviva’s CEO (£1m), Jupiter’s CEO (£0.7m), Ultra Electronics’s Chairman (£0.2m) and the new Pearson CEO who has acquired £3m as part of a co-investment plan. 

Performance data for the period 16 June 2008 to 23 October 2009 is for Ryder Court UK Dynamic Fund. From 23 October 2009 onwards, the Fund converted to the JOHCM UK Dynamic Fund.

Data shown net of fees, net income reinvested. Please note that all fund performance is shown against the FTSE All-Share TR 12pm adjusted. Performance of other share classes may vary and is available on request. Where shown, monthly returns table shows compounded discrete monthly performance. Performance of other share classes will vary and is available on request. During the period 16 June 2008 to 23 October 2009 the performance record is based on the pre-existing share class that had a higher management fee.

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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 annual management charge is deducted from the capital of the Fund. This will increase the income from the Fund but may constrain or erode potential for capital growth. 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.