The Fund aims to achieve long-term capital growth and to generate a dividend yield that is above that of the FTSE All-Share Index average. The Fund focuses predominantly on stocks within the FTSE 350 Index that generate a prospective yield above that of the FTSE All-Share Index average. The Fund's performance benchmark is the FTSE All-Share Total Return Index denominated in sterling.Please note that for capacity reasons the Fund is now 'soft-closed' to new direct investors.

Stock markets had a difficult month due to an acceleration in Covid-19 cases in Europe at the beginning of the month and then the emergence of the Omicron variant in the last week. As is usual for a period of heightened uncertainty and a rush to perceived safety, the Fund underperformed its benchmark.

Amidst this risk-off sentiment, defensives outperformed. Our holdings in this area – Drax, National Grid, Tesco and Vodafone all performed well (up 3-9% relative to the Fund’s benchmark, the FTSE All-Share Total Return index). We also had a number of strong, stock-specific performances. U & I was up 73% in relative terms following the announcement of a takeover by Land Securities; Currys was up 12% in relative terms following a good trading update and the announcement of a £75m share buyback; and ITV was up 4% in relative terms following strong results. These stock performances highlight some themes that are currently running through the Fund: (a) close to 50% of the Fund’s holdings are buying back their own shares (a reflection of strong balance sheets, management confidence and a view that their shares are cheap); (b) the majority of the Fund is showing strong operational performance; and (c) when we receive a takeover bid, the premia tends to be significant (a function of the significant undervaluation within the Fund). 

These positives were offset by the risk-off mentality with banks’ share prices falling as 10-year bond yields fell in response to Covid-19 developments. This contrasts with a series of positive meetings we had with management teams of the banks during the month. There seems to be a collective confidence that a return on capital of 10% can be sustainably achieved. This contrasts with valuations at 0.4-0.6x book value. Other areas of weakness included travel and leisure - in recent quarters we have modestly added to the stocks we think will be winners coming out of the Covid-19 period. This basket, which is c. 2.5% of the Fund, was very weak (e.g. Easyjet, which is 0.75% of the Fund, fell 17% relative). Finally, small caps were weak for no specific reason that we can see. Sthree, Galliford and DFS were down 7-10% in relative terms. 

In terms of portfolio activity, we made relatively few changes to the portfolio as we need to let the Fund ‘breathe’ to allow the undervaluation be recognised 

With such a potentially bright outlook for the UK economy, we remain utterly bemused by valuations in the UK stock market. Despite very clear messages from private equity buyers that the UK is comfortably the most attractively valued developed market in the world, the rest of the investment community just doesn’t seem to be listening. With interest rates and discount rates set to rise during the next year, this has to help the UK, given its value factor weighting, but there is so much more to it than that. As we have highlighted many times before, in an absolute sense, valuations across our portfolio continue to look extremely undemanding. Balance sheets are in extremely good shape with around 50% of the portfolio by value currently buying back stock with surplus capital. We expect to see our Fund dividend return to its pre-pandemic level during 2022 and grow thereafter, which would equate to a dividend yield of 5%. Rarely, if ever, have the relative attractions of the UK and our Fund been brighter than this, yet very few investors seem to be interested. We encourage all of you to have another look. 

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.

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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. 

The information set out below relates to the Irish-domiciled fund which has been established for this strategy. To date this fund has not yet been launched. The UK-domiciled fund follows the same investment approach but is not required to comply with the full requirements of SFDR and the Taxonomy Regulation.

Amongst other characteristics, the Fund promotes environmental and social characteristics and invests in companies that apply good corporate governance. JOHCM Funds (Ireland) Limited, the Fund’s manager has therefore categorised the Fund as meeting the provisions set out in Article 8 of EU Regulation 2019/2088 on sustainability-related disclosures in the financial services sector (“SFDR”).  

J O Hambro Capital Management Limited (“Investment Manager”) seeks to invest only in companies that meet minimum sustainability practices and have a coherent and well-articulated approach to sustainability to remain relevant to their customers, investors and society in general. The Investment Manager recognises that companies which fail to do so will progressively struggle.   

In order to achieve the above, the Investment Manager uses ESG scores to assess and monitor its investments and seeks to exclude businesses that are rated as ‘CCC’ by MSCI ESG or are assessed as ‘non-compliant’ with the UN Global Compact.  When an investee company no longer complies with any of these standards, the Investment Manager will engage with that issuer for a period of up to 18 months to allow the company to implement the necessary change, otherwise the Fund will exit that position.  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 its third-party provider, ISS, or such other source as the Investment Manager determines.  We utilise the UN Global Compact assessment of another third-party provider, Sustainalytics. 

In order to measure and monitor the environmental characteristics of the Fund, the Investment Manager will review the carbon footprint of the portfolio, the trajectory of change of its investee companies’ ESG ratings and environmental data published by those companies.  For the social characteristics of the Fund, the Investment Manager will review whether investee companies have implemented appropriate policies and structures to support sustainable business practices.   

Although the Fund may invest in economic activities that contribute to an environmental objective within the meaning of the EU’s Sustainable Finance Disclosure Regulation (SFDR), the Investment Manager is not currently in a position to assess the proportion, as a percentage of the Fund’s portfolio, of investments in environmentally sustainable activities which are aligned to the EU’s Taxonomy Regulation (TR) (Regulation (EU) 2020/852) and amending Regulation (EU) 2019/2088.

This is due to a lack of reliable, timely and verifiable data for the Investment Manager to make a full and accurate assessment of the investments of the Fund against the TR’s Technical Screening Criteria in respect of climate change mitigation and climate change adaptation. It is also important to note that given the geographical focus of the Fund’s strategy; companies within the investment universe might not be under any obligation to provide the data required under EU legislation.

As a result, the Investment Manager is unable to determine whether the underlying investments in the Fund contribute to climate change mitigation and/or climate change adaptation, or whether the Fund has investments in economic activities that qualify as environmentally sustainable pursuant to the TR. As such, it has been determined that, 0% of the Fund’s investments are in economic activities that qualify as environmentally sustainable under the TR.

The Investment Manager is keeping this situation under review and will revisit the TR disclosure requirements once sufficient data is available.

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.