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.

Market Overview

• Rising tensions in the Middle East, disappointing corporate earnings and rising bond yields combined in October to bring risk-off sentiment back into play, culminating in falling global bond and equity markets. Safe haven assets of gold, USD and commodities outperformed at the asset class level. 
• The FTSE 100 returned -3.7%, helped by the higher exposure to commodities, whilst the more cyclical FTSE 250 returned -6.3%. Regionally, the UK delivered an in-line performance with the rest of Europe, whilst the US and Emerging Markets outperformed. 
• Except for utilities, which rose 2.8% in aggregate, all sectors in the FTSE All Share were negative in October. Energy was the next best performing sector, declining 1.1%. Oil prices ended the month 8% lower, although the sharp sell-off at the beginning of the month reversed following the attacks in Israel. 
• Financials were 7% lower in aggregate, taken lower by the banking sector, which declined 11% after disappointing earnings and warnings on outlooks. Healthcare was the next worst performer, declining 6% during the month.

Performance Contributors

• The fund declined 4.26% in October, an inline performance with the FTSE All Share, which fell 4.18%. Modestly positive stock selection was offset by negative allocation from the fund’s underweights in energy and consumer staples. An overweight to financials also detracted from allocation.  
• Moneysupermarket was the fund’s top contributor, adding 37bps. The company reported revenues that beat consensus on its Q3 trading update, driven by an acceleration in the insurance segment. If momentum continues into the final quarter, we expect the company to beat full-year guidance comfortably. 
• Centrica delivered another strong share price performance, adding 33bps. The company has been executing on its cumulative £1bn share buyback plan, announced at interim results. With the group's balance sheet transformed, profitability of core assets recovering strongly, and the company actively reinvesting profits into green capex projects, the shares are still materially undervalued. Additionally, the company has committed to return further surplus capital to investors, which gives the shares plenty of headroom to continue outperforming.
• Pearson delivered another strong update and upgraded guidance for the year, adding 30bps to relative performance. The English Language Learning and Assessment divisions delivered strong results. The company continues to reinvest for future growth. 
• Barclays was the biggest detractor in October, costing -46bps. Provisions came in better than expected; however, trading in the FICC division was 26% lower. Disappointing NIM and a cut to future NIM guidance within the UK bank, sent the shares lower, as deposit beta among clients was higher than expected. The relative performance impact was offset c.50% from underweights in Natwest (12bps) and Standard Chartered Bank (10bps). HSBC was more resilient after announcing a $3bn share buyback and holding credit impairment losses – of which 50% relates to China commercial real estate – at $1.1bn. At the aggregate level, the fund is equal weighted to the banking sector, so relative performance impacts overall were contained. 
• 3i Group had a minor pull back during the month but remains strongly positive for the year. Moody’s announced underlying asset Action’s intention to issue a $1bn term loan, which will fund capital returns to shareholders, implying an increase in dividends to be received by majority owner 3i. We maintain conviction in the position as we approach the group’s half-year update in November. 
• Six of the ten largest detractors were from underweight positions. Shell detracted -28bps, having delivered a more robust set of results compared to the fund’s overweight position in BP, which reported disappointing revenues from its gas trading division. BAE Systems, Diageo, Relx, Rio Tinto and Compass in aggregate cost -84bps of relative performance. 

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.