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.

‘No landing’ and stagflation are increasingly creeping into the market vernacular as patches of slowing economic growth meet persistently stubborn inflation readings. Despite this, company rhetoric remains extremely positive, most particularly in the UK, where overall performance continues to gently diverge from the US. In fact, the UK appears very much ‘open for business’ as not only does the elevated cadence of corporate activity continue, but also, further, compelling evidence of confidence continues to build. Notably, capital raisings have re-appeared with a vengeance with National Grid’s substantial rights issue, the biggest in the market since 2008, funding its monster £32bn capex upgrade plan for the electricity backbone. Meanwhile, on a smaller scale but no less interesting, there was a similarly proactive deal from Great Portland Estates to fund asset purchases at what they believe is the bottom of the cycle. Unsurprisingly, given all the above and the still gaping valuation discount, the UK market continues to grind higher. This was further bolstered by tentative early evidence of the things broadening out, with the first month of meaningful outperformance of small and mid-cap assets for a considerable period, alongside volumes and block placings picking up, the IPO market beginning to stir and international enquiries continuing to build. These are all classic bull market indicators and should hopefully portend a strong period of returns ahead.

May was a pleasing month for the strategy, with the positive alpha generated almost entirely from stock selection. Qinetiq was a meaningful positive after unveiling a better-than-expected outlook and a substantial pipeline for its next-generation service suite. Strategically, the company is ideally placed for the dynamic, ever-evolving military and geo-political threats that necessitate a potentially decade-long re-armament cycle and considerably improved structural growth prospects. Centrica saw a healthy bounce back after unjustified weakness, whilst Crest Nicholson rallied alongside most of the housebuilding sector in hopes for a post-election stimulus, unsurprising given the priority the surely inevitable incoming party, Labour, seem to be placing on this area. Sadly, heading in the opposite direction was Dowlais, the biggest negative contributor over the period, as balance sheet fears and sluggish trading continued to weigh on the multiple. 

Meanwhile, BT’s results were in line with expectations, but very significantly, the increased confidence in the high-speed fibre rollout and next-generation network potential, which has been apparent in recent engagements with management but on which the market has been sceptical, was tangibly underpinned with a huge cashflow upgrade. Despite a punch of 17% move on the day, the shares are still dramatically under-reflecting the significance of this development and how it will cascade very powerfully down to the equity. Indeed, in an environment where, at the margin, they see less competition, not more, and with the impact of productivity enhancements still to flow through, the shares still trade on a monster free cash flow yield as the capex rolls off and the multi-year transformation starts to truly bear fruit. Our confidence has increased as a result and our position size has done likewise.

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.