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.

Global equity markets retraced much of their previous month’s losses as news flow challenged investors’ bearish positioning. Markets took comfort from signs that the daily global death toll from Covid-19 may have peaked, preliminary trial results from Gilead Sciences’s remdesivir and further central bank stimulus. The US Federal Reserve’s further pledge of up to US$2.3 trillion to support businesses including the purchase of high yield bonds averted any growing fears of a credit crisis. The VIX index unwound the previous month’s gains and bond yields fell globally, with the average bond yield of the 12 largest equity nations reaching an all-time month-end low of 1.00%. 

The Fund underperformed the index in April. Underperformance was attributable to the Fund not owning AstraZeneca, an unwind of the previous month’s share price gains versus the benchmark at QinetiQ (-9%), and a trading statement from Pearson (-21%). Whilst the latter was in line with the company’s update in March, it was not enough for a very bearish set of analysts. Aviva also had a tough month, albeit there was no significant news flow. 

Whilst the Fund participated in the market rally to a degree, the bounce back was underwhelming with no particular standout positive performances. Stocks that did have a reasonably strong bounce included Crest Nicholson, Electrocomponents, WPP, ITV, Elementis, Barclays and John Wood Group. 

The Fund continued to actively allocate capital in line with the priorities we set out at the end of Q1 (our quarterly webinar is available on our website). A cash buffer of 3.5-4.0% was maintained (an 18bp headwind over the month), whilst the Fund also allocated capital to support a placing of shares at The Restaurant Group. The £57m raised should provide the company with sufficient liquidity to survive the crisis, a crisis which will undoubtedly lead to substantial capacity withdrawal across the UK restaurant sector. The Fund continues to tactically allocate capital to those portfolio companies that need additional liquidity. With Hyve Group’s rights issue now announced (7 May), all ‘high likelihood’ candidates have been addressed. Q1 results from Elementis provided welcome relief, with trading slightly ahead of some analysts’ forecasts and a relaxation of the net debt/ebitda covenant until the June 2021 test date. We believe that this company may not need to raise equity, contrary to market expectations.

Barclays posted a better-than-expected Q1 performance where the diversity of the bank’s earnings proved its worth. Of note was a record quarter from the markets division within the investment bank. Capital and tangible net asset value were both slightly better than expected.

The Fund continues to build conviction positon sizes. The importance of this was confirmed by strong Q1 trading from Convatec, a position the Fund which has increased from 64bps to 154bps year to date. Sales came in ahead of consensus whilst resilient trading demonstrates the underlying quality of this business. 

With over 50% of the Fund’s capital in stocks trading below their book value (versus 18% at the beginning of the year), we believe there remains significant potential to create meaningful value for investors. We remain confident that performance should improve through the second half of Q2 and could be materially better in the second half of the year.

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.