May was another good month for European stocks, a month in which consumer discretionary, energy, consumer staples and financials performed well. Inflation remained the hot topic over the month, particularly with the US consumer price index jumping 4.2% year on year, significantly above expectation and the fastest pace in 12 years, with the core inflation reading also beating expectations at 3%. The debate remains around the sustainability of higher inflation, given the base effects from last year with the likes of energy and used car prices having significantly rebounded. In Europe preliminary PMI data showed Services catching up to 55.1 and Manufacturing staying steady at 62.8. The IEA’s report on net zero by 2050 was a focus. To achieve this target, it sees the need for no investment in new fossil fuel supply and an end to sales of internal combustion engine-powered cars by 2035, with annual additions of solar and wind to reach 630GW and 390GW by 2030. The demand in green energy production remains the one irrefutable in all of this. 

A small amount of outperformance was gained over the month, attributable to strong stock selection, particularly within financials where the likes of the French banks and Santander performed well. Deutsche Post was the leading contributor after increasing its full-year forecasts and benefiting from an outlook of rising parcel demand, both on the consumer and business side, at a time of still very reduced airline freight capacity. UPM and RWE dragged a little, but without significant newsflow. I further added to the holding in Ahold after it recently upgraded its full-year targets and see a catalyst in the market’s further re-pricing of its Bol.com business, which is some nine times bigger than Amazon in the Dutch market, and is targeting growth of some 25% plus for the current year. Elsewhere, I sold the remaining holding in Signify after a significant re-rating and added to the portfolio’s UBS position on weakness.

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.