The investment objective of the Fund is to achieve long-term capital appreciation through investment in a diversified portfolio of Asia ex-Japan Small and Mid Cap equity securities. The Fund aims to achieve its investment objective primarily through investment in equity securities of companies with a small or middle market capitalisation all of which will be domiciled or exercising the predominant part of their economic activities in the Asia ex-Japan region. The Fund will generally invest in stocks of companies with a market capitalisation of less than US$6 billion, with trading liquidity a key consideration.

MSCI AC Asia ex-Japan Small Cap Index managed to buck the global equities sell-off and post a gain of 1.62% in USD terms and 6.68% in GBP terms. India and Indonesian equities were the star performers as investors focused on the domestic economic revival of these countries and were unperturbed by the normalisation of monetary policies through interest rate hikes undertaken by their central banks. Inflation in these economies is “cost-push”, via higher energy and commodity prices, rather than excessive demand-led pressures. Yet investors are optimistic about the outlook for these markets. Korea and Taiwan markets tracked the fallout in the developed market equities after the US Federal Reserve shattered hopes that they would pivot to a more dovish tilt next year. Indeed, Fed Chair Jerome Powell categorically stated that they will “keep at it”, in relation to the hawkish monetary stance until inflation is convincingly on the path to their target of 2%.       

The Fund underperformed the benchmark in August due to our overweight position in China and Hong Kong as the weak economy, and stringent Covid control measures weighed on investor sentiment. In addition, our holdings in Thailand suffered from the recent poor second quarter earnings results as the domestic economic recovery remains tepid. Fortunately, our overweight stance in India and Indonesia helped to cushion the drawdown. During the month, we took profits on one of our factory automation-themed stocks which performed exceptionally well and initiated a position in OPT Machine Vision.   

OPT Machine Vision is one of China’s pioneers in the machine vision industry. It was founded in 2006 with a lighting business, and after more than 15 years of development and growth, it has expanded its product suite to include lighting controls, lenses, cameras, vision systems and other key machine vision components. As manufacturing processes get more complex and the labour shortage problem intensifies due to China’s ageing population, installing machine vision systems in factories is increasingly important to improve production efficiency and quality. OPT’s revenue is skewed to the electronics industry, which accounts for 59% of sales, followed by the electric vehicle battery sector with 30%, and others such as semiconductor, solar and automotive making up the balance. Some of its major customers include Apple, Huawei, Tesla, Google, OPPO, BYD and Contemporary Amperex Technology. OPT’s consistently high research and development spending at 11-15% of its revenues over the years has enabled it to narrow its technology gap with global leader Keyence of Japan and widened it with local Chinese peers. This, coupled with its more competitive product pricing than Keyence (about 20% cheaper), has allowed it to outgrow the industry in China. As the structural trend of machine vision adoption in the manufacturing process is still nascent in China, we believe OPT is well-placed to benefit.     

JOHCM/MSCI/Bloomberg/Lipper.

Data shown net of fees, net income reinvested in GBP terms. Benchmark: MSCI AC Asia ex Japan Small Cap NR 12pm adjusted Performance of other share classes may vary and is available on request. 

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. Investing in companies in emerging markets involves higher risk than investing in established economies or securities markets. Emerging Markets may have less stable legal and political systems, which could affect the safe-keeping or value of assets. 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.

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 avoid sectors which contribute to significant social and environmental harms. The Investment Manager uses ESG performance indicators to assess and monitor its investments as well as within the investment decision-making process. 

In addition to considering ESG key performance indicators, the Fund applies exclusions to support the avoidance of harms.  In order to reduce the adverse environmental impact of the Fund’s portfolio and in particular its contribution to climate change, the Investment Manager excludes investments in any companies which derive 10% or more of their revenue from thermal coal mining, coal-based power generation, oil and gas extraction and production, or from unconventional oil and gas. Also excluded are companies which derive 10% or more of their revenue from activities which contribute to social harms, in particular, gambling, weapons and tobacco. These selection criteria may not be disapplied or overridden by the Investment Manager.    

See full details on the implementation of the exclusions below.    

The Investment Manager recognises that ESG factors can create risks and opportunities for companies and looks for companies who may benefit from this by incorporating ESG factors into their analytical framework and portfolio construction. 

In order to measure and monitor the environmental characteristics of the Fund, the Investment Manager will review the carbon footprint of the portfolio and environmental data published by its investee 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 companies which engage 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 currently not 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. JOHCM has met the expected standard of reporting under the UK Stewardship Code in 2021 and has been approved as a signatory.. 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 MSCI AC (All Country) Asia ex-Japan 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.