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 outperformed the index in August. Performance was attributed to stock selection and was broad-based with strong trading updates and further positive M&A activity being the main drivers. 
   
Shares in Morrisons moved higher reflecting a raised offer of 285p from CD&R, outbidding an already raised 272p offer from the Fortress-led private equity consortium. It has since been confirmed that this will be concluding via an auction process.

Stock Spirits also received an all-cash offer from private equity at 377p per share, a 41% premium to the previous day’s share price. A good outcome for the Fund and a strong endorsement of management’s successful turnaround. The strategy, which this Fund backed from the start, delivered a recovery in the core Polish business leading to increases in market share and profitability notwithstanding COVID-19. 

Aviva’s interims confirmed that “at least” £4bn of capital would be returned to shareholders, equivalent to over 25% of the current market capitalisation, with the immediate launch of a £750m share buyback. A significant milestone in the turnaround strategy actioned by the new CEO barely a year ago. Management also committed to reducing debt by £1bn and confirmed cash remittances from the core business were on track to be over £5bn from 2021 to 2023 demonstrating the de-risking profile of this business. 

Interims from TT Electronics showed not only a step change in trading momentum, with management raising guidance, but also in the transformation of this business to a higher margin, higher visibility and therefore higher quality business. The Fund had increased the position from 100bps to 135bps over the previous six months.

WPP also increased FY21 guidance at its interims to like-for-like (LFL) growth of 9-10% versus c7% previously and margins to be at the upper end of the previous 13.5-14% range. Growth in Q2 LFL revenues less pass-through costs was WPP’s highest on record and above 2019 levels, a year earlier than management expected, as clients reinvested in marketing, particularly in digital media, ecommerce and marketing technology. This activity demonstrates not just the scale of the cyclical bounce back but also the impact of new management’s strategy on WPP’s ability to continue to win new business dispelling concerns over the structural nature of revenue declines in previous years.
  
Offsetting this momentum was further weakness in ConvaTec’s share price following the previous month’s interim results. Despite increasing revenue guidance, management moderated expectations on near term margin progress to reflect some transitory cost pressures. This could prove to be conservative guidance but, at this early stage in the turnaround, it is also demonstrates management’s focus on the long term. Messaging has been clear on the importance of investing to create a platform that can deliver growth both globally and sustainably. We see this as just a minor misstep in what is one of the Fund’s highest conviction turnaround stories and have rebuilt the position in to weakness.

Finally, weakness in Pearson’s share price we believe is misplaced. Given the strategic progress outlined in the previous month’s interim results the Fund has increased its position in to this weakness.    

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.

FTSE International Limited (“FTSE”) © FTSE 2017. The Industry Classification Benchmark (“ICB”) and all  rights in it are owned by and vest in FTSE and/or its licensors. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under licence. Neither FTSE, nor its licensors accept any liability for any errors or omissions in the ICB. No further distribution of ICB is permitted without FTSE’s express written consent.

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.

The Fund has the objective of generating a positive impact by investing in companies that have the potential to address the world’s major social and environmental challenges. 

In looking for investments, J O Hambro Capital Management Limited (“Investment Manager”) seeks to avoid investing in companies which contribute to significant social and/or environmental harms, and thereby fail environmental, social and governance (“ESG”) key performance indicators.  The Investment Manager takes a holistic approach when considering a company’s sustainability characteristics.  In particular, the team looks for the sustainability “mindset” of the organisation, asking how is this business thinking sustainably and how does this lead to more sustainable, forward-looking business decisions.  In order to achieve the above, the Fund applies an exclusion to those companies it considers “non-sustainable”. The Fund will invest no more than 10% of the Fund in companies rated ‘Severe’ by Sustainalytics, and for any such Severe-rated company to be investable it must be categorised as ‘transitioning’ as defined by the Investment Manager’s framework.  The selection criteria may not be disapplied or overridden by the Investment Manager. 

The exclusion criteria referred to above will be applied prior to making any investment and the fund’s portfolio will be monitored for any investments which breach these exclusion criteria on a periodic basis. For this purpose, the Investment Manager will rely on data (and the ESG definitions aligned with that data) from a third-party provider, or such other source as the Investment Manager determines.  

In order to measure and monitor the environmental and social characteristics of the Fund, the Investment Manager will review relevant metrics including the carbon footprint of the portfolio, emissions reduction targets, diversity metrics, employee engagement, and whether investee companies have implemented appropriate policies and structures to support sustainable business practices.  The Investment Manager will also consider data provided by a third-party data provider, although this will not necessarily directly influence whether a company will be bought or sold by the Fund. 

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 FTSE All Share Total Return 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.