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 July, returning -4.93% versus a -2.68% return by its benchmark, the FTSE All-Share Total Return index (12pm adjusted). With 23 of the Fund’s holdings (over 50% of total capital) reporting results over the month, it is quite remarkable only three of these were top five or bottom five contributors to performance, highlighting the wider effect of sentiment on the Fund.

Q1 results from 3i, the Fund’s largest position, were particularly strong. NAV growth was ahead of analysts’ forecasts, reflecting a resilient performance across the portfolio. Trading at Action was standout with sales over the last 12 months surpassing those of FY19. 3i have reverted to using a multiple of EBITDA to value its stake in Action meaning future earnings growth will directly translate to NAV growth. The uplift in NAV from Action for Q1 only reflected the cash it generated in the period.

Signs of resilient trading elsewhere in the portfolio went largely unrewarded by the market. Interims from Travis Perkins showed strong cash generation and improving end markets with sales run-rates in July close to those of last year. Likewise, Essentra had one of its best trading statements in its four-year turnaround with sales run-rates back to previous year levels, further improvements in cash generation and a landmark contract win for its healthcare packaging division to supply the world’s leading Covid-19 vaccine.

Electrocomponents’ Q1 trading showed signs of sequential improvement with June’s exit sales rate at -7% versus the -11% for Q1. At QinetiQ, despite Q1 trading being impacted, the order book and cash generation remained strong. The strategy also continued to progress as evidenced by the signing of an agreement with the US Defense Counterintelligence & Security Agency (DCSA) for QinetiQ to operate all of its US operations under a new Special Security Agreement (SSA) allowing deeper collaborations going forward.

News that Centrica will sell Direct Energy at a valuation 50-75% higher than most analysts’ sum-of-the-parts valuations was particularly noteworthy. Not only does this underline the hidden value in this company but it also shows decisive action from the new Chair, CEO and CFO in unlocking this for shareholders.

Offsetting this, shares in Barclays fell 9% relative to the benchmark despite Q2 results being ahead of expectations on earnings and capital generation. The market chose instead to worry about potential consumer spending headwinds, a scenario that had already led shares to become deeply discounted. Quite remarkably its shares now trade at an all-time low valuation of just 0.3x tangible book value.

Shares at Melrose declined 22% relative to the benchmark, tracking the decline in FY21 earnings implied by management pushing out their expectations of a recovery in the macro environment, particularly in aerospace. The share price decline ignored that the downgrade to FY22 earnings was only half as severe and cash generation had improved over the period. Shares ended the month trading at 0.65x book value despite no covenant tests until June 2021. On 4th August, this test was waived for another six months. Elsewhere, ITV’s shares fell 22% relative to the benchmark on no news flow.

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.