February brought with it what many had been waiting for - one of the largest bond sell offs in the last thirty years, with ten-year Treasuries seeing yields rise by 34 bps and by 26 bps on the Bund. The reduced levels of Covid-19 infections and the rollout of the vaccination programs has given further hope to a faster reopening and stronger growth, driving the increase in real yields. Whilst equities were strong, it was the degree of sector rotation which was the big news, with a near ten percent rally in financials and energy versus the sell-off in long duration defensive sectors and growth stocks. Despite the strengthening in the dollar, commodities moved higher, Brent oil moved nearly $10 to $64 whilst the copper price jumped over 15%.

Mario Draghi formally accepted the role of Italian Prime Minister and emphatically received the requisite votes of confidence in the Senate. Draghi has become PM at a pivotal moment given the choices which need to be quickly made as regards the request and deployment of Recovery Fund proceeds. The Eurozone, German and French manufacturing PMI’s all moved to three-year highs in February whilst the service sector continues to lag.

The Fund’s strong outperformance in February was predominantly driven by financials, where positions in Societe Generale, ING and Intesa made significant contributions. The backdrop for financials in a more reflationary scenario is clearly more favourable as seen by the moves in swap rates over recent periods. The sector has been the standout performer so far during the fourth quarter results season with surprises at both the fee and provisioning lines. We added further exposure to the sector with purchases of Generali and Nordea. Both benefit from strong earnings outlooks backed by very high dividends enabled by significant over-capitalisation. The underweights in consumer staples and healthcare also drove performance. The main headwind came from the overweight position in utilities. We have not reduced our weighting  here as the structural outlook for renewable energy deployment remains extremely positive on the back of the Green Deal. A number of positions with higher valuations were reduced such as Just Eat, certain semiconductor names and Corbion, whilst we sold out of Cellnex. Overall, we think the portfolio is well-positioned for the changing outlook.

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.   

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.