The Fund aims to achieve long-term capital growth by investing in UK listed companies across the broad market cap range.

March capped off a solid quarter for global equity markets, with the FTSE World index up 9.5%. For a change, the month saw the UK market keep pace with its developed market peers, rising 4.8%; however, it remains a laggard for the quarter and retains its ‘world’s favourite underweight’ tag. This is not surprising when the market has experienced 31 months of relentless outflows, leading to the sector-adjusted valuation discount to the US hitting a new all-time high. For a long time, we have operated in a subset of the global market with extraordinary valuation anomalies, but there is now overwhelming evidence that things are starting to change. The strategy has had a strong month and quarter, but in our opinion, given the drivers discussed below, we are only scratching the surface. 

An extraordinary 8% of the UK small-cap market was bid for last year, and the momentum has continued into this year. A key difference, however, has been the shift in the mix of buyers. Approximately 61% of buyers last year were financial, but we are now witnessing a shift to trade buyers where more operational synergies are available and, therefore, higher premiums for shareholders. Two trade buyers approached JOHCM UK Growth asset Smartspace, and a bid was confirmed in March at a 169% premium – the highest level seen in the funds’ 23-year history. We also witness bidding wars emerging across the market, for example, in DS Smith, Wincanton and Spirent. Given the portfolio is constructed with structural growth assets that invest in themselves and continuously embed value through the cycle (approximately 65% of the portfolio is invested in clear market leaders), we expect the portfolio to be a firm beneficiary of this trend.  

Corporates are also taking decisive action to close the yawning valuation gap. Just Group, a retirement specialist, on the back of achieving medium-term targets earlier than planned and a tangible net asset value rising by c.17%, raised its return on equity target from 10% to 12% and increased its dividend by 20%. Puretech, a clinical stage biotech business, launched a tender offer to buyback 14% of its own equity at a 25% premium to its prevailing share price, following sale of its lead asset to Bristol-Myers Squibb. Despite already generating over $1.1bn in cash off a $18.5m investment, it still retains access to a further $400m of milestone payments and royalties. The current share price however, still implies a negative enterprise value for the remaining pipeline of well-invested programs in our opinion. This trend by corporates to take charge of their own destiny from an equity perspective could, in time, also benefit a host of other UK Growth assets including NCC, Gooch & Housego & Trufin.

Finally, recent newsflow for JOHCM UK Growth has been excellent and our company interactions have been hugely positive. As a result, one or two shares have woken from their slumber, but most still have not. UK fintech Funding Circle announced solid set of results for its core UK operations accompanied by multiple approaches for its US operations. The divestment process, when completed, will result in converting the ongoing business into a profitable, cash-generative growth franchise focused on the UK with a significant amount of excess capital. Given that the business was already on a material discount to its unrestricted free cash, the board is returning a quarter of its market capitalisation to shareholders via a buyback - a material value accretive event for the equity. The shares were up 80% over the month, but such was the scale of the undervaluation, the shares could double and still remain undervalued in our opinion. 

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. All performance figures illustrate performance from the first full day that the Fund held investments. During the period 6 November 2001 to 7 May 2003 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 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.