Hawkishness grew during the month. The Federal Reserve increased interest rates by 0.5% and confirmed quantitative tightening will begin in June. The Fed Chair Jerome Powell gave indications that two further half-point rises are likely in June and July, whilst CPI came in at 8.3%, modestly below the previous month’s 8.5%. US bond yields were a little lower than the previous month, whilst the German 10-year rose nearly 0.2% to 1.12%. The European Council reached agreement on a sixth package of sanctions on Russia, including an embargo of seaborne Russian oil by year-end, a move that would block approximately two thirds of Russian oil imports, with additional pipeline bans by Germany and Poland. Russia supplies 27% of the EU’s imported oil and the Brent oil price rose a further $10 in May to $115.6. The global manufacturing PMI was fairly unchanged in May; there are signals that semiconductor and sea-freight shortages and delays are starting to ease versus an overall demand outlook which is getting tougher. China news flow remains weak on the Covid lockdowns, with weak retail sales and industrial production. In France, President Emmanuel Macron named former Labour minister Elisabeth Borne as France’s Prime Minister, with elections to the National Assembly due to go ahead in June. In light of the war in Ukraine, Finland and Sweden simultaneously submitted an official letter of application to join NATO at the Brussels headquarters.

May was a strong month for the fund, with strong stock selection and positive allocation. All sectors outperformed other than consumer discretionary. The financial sector was particularly strong, led by Commerzbank and Société Générale. Over the month Deutsche Telekom made the largest contribution, helped by the strong share price performance of T Mobile USA, where it remains possible that the planned huge multi-year stock buyback will begin this year. Roche dragged on performance after the failure of a drug trial for lung cancer, and the size of the position was reduced. The valuation bubble of growth and quality stocks continues to burst, after the irrational exuberance of previous years. Whilst we have added to the likes of ASML, we continue to proceed with caution on this front given the premiums which are still elevated. 

Data shown net of fees, net income reinvested. Please note that fund performance is shown against the MSCI Europe ex UK NR 12pm adjusted. Data for the period 5 November 2001 to 31 December 2012 is shown against the FTSE Eurofirst 300 ex UK TR Index. Performance of other share classes may vary and is available on request. Where shown, monthly returns table shows compounded discrete monthly performance. During the period  5 November 2001 to 7 May 2003 the performance record is based on the pre-existing share class that had a higher management fee.

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.
 

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 investing in companies which employ practices that contribute to significant environmental and social harms. The Investment Manager focuses on the incremental direction of travel that a company is on and considers whether a company is contributing to or undermining the UN Sustainable Development Goals when assessing its environmental management and social impact. In particular, the Fund seeks to avoid companies with poor performance in relation to carbon emissions, diversity, wages and treatment of employees. 

In addition to considering Environmental Social and Governance (“ESG”) key performance indicators, the Fund applies exclusions to support the avoidance of harms. In order to support the reduction of adverse environmental impacts of the Fund’s portfolio, the Investment Manager excludes: 

1. any company which derives greater than 5% revenue from thermal coal mining; 
2. any company which derives greater than 5% revenue from oil sands; 
3. any company which derives greater than 5% revenue from arctic drilling; 
4. any company which derives greater than 5% revenue from hydraulic fracturing; and 
5. any company which derives greater than 35% revenue from coal-based power generation. 

These selection criteria may not be disapplied or overridden. 

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 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. 

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 MSCI Europe ex UK NR 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.