The objective of the Fund is to offer regular income generation consistent with long termcapital growth. To achieve this objective the Fund will apply an investment process based on fundamental analysis (i.e. a method of evaluating the “intrinsic value” of a security by examining related economic, financial and other qualitative and quantitative factors).

The Fund seeks to achieve its investment objective by applying a bottom-up, long-term global value investing philosophy across a variety of asset classes as further detailed below. In a bottom-up approach, companies and securities are researched and chosen individually rather than on the industry in which that company operates or on the economy as a whole. The Fund will invest in a wide range of equity securities of companies located in multiple countries around the world with a focus on shares which offer an attractive dividend yield (generally two percent or higher). The Fund will invest in a wide range of fixed income instruments securities from markets in multiple countries around theworld such as high-yield instruments debt-securities (commonly referred to as ‘‘junk bonds’’), investment grade instruments debt securities and sovereign debt securities.

With the exception of emerging markets, global equity markets posted positive results during the final quarter of 2021.  Within US growth equities, the quarter saw significant performance dispersion between mature, profitable growth stocks and early stage, unprofitable growth stocks (generally in the technology sector).  These unprofitable names, affected by earnings misses and interest rate concerns, hurt the overall returns of the Nasdaq.  Non-US developed market equities, as measured by the MSCI EAFE Index, delivered positive returns (+2.74%) but trailed US equities substantially; this was partly explained by the strength of the US dollar relative to other major developed market currencies.

Our top contributors among our equity holdings during the quarter were ON Semiconductor, Microsoft and Pfizer.  ON continues to be a very successful investment for us and advanced following a strong third quarter earnings report with encouraging forward guidance.  Microsoft also delivered third quarter earnings results that were well-received.  Pfizer benefited from approval of its anti-viral Covid treatment and high expectations for its Covid vaccine franchise.

Our top detractors among our equity holdings during the quarter were Block, Danone and Repsol.  Block (formerly known as Square) suffered a sharp setback as fintech stocks, and high growth technology shares in general, experienced a wave of negative sentiment.  Danone traded off on concerns around cost pressure and ongoing problems within the Chinese infant formula market.  Repsol started the quarter at the high end of its trading range for the year and declined as crude oil prices fell over the course of the quarter.

Within our credit portfolio the top contributors were Advantage Solutions bonds and DCP Midstream subordinated debt.  The biggest detractors were the technology convertible bonds which suffered from the material derating amongst unprofitable technology stocks.  However, the nature of our exposure to these companies through converts means that as the stock prices go down, our sensitivity to the stock price reduces.  As just one example, through the quarter, Alteryx stock declined by over 17%, while the convertible bonds fell by just over 2%.  Conversely, should these equities appreciate going forward, the convertible bonds should act more like equities and less like bonds on the upside.  

Rising inflation expectations coupled with a more hawkish tone from the Fed suggest we are in a less reflationary environment as we enter the new year than we were at the beginning of the third quarter.

The arrival of the Omicron variant at the end of November has complicated the macroeconomic picture, however.  In the short-term, the variant will likely lead to a reduction of consumption (deflationary) and additional supply chain challenges (inflationary).  In the medium to long-term, thanks to potentially lower severity and higher transmissibility, it may (after the initial wave of infections passes) result in increased consumption (inflationary) and improvement in supply chains (disinflationary).  On balance, we are tilted somewhat pro-cyclically, with a continuation of the reflationary environment as our highest probability scenario.  With markets potentially in transition against the backdrop of central bank tightening, we remain focused on identifying idiosyncratic bottom-up opportunities.

•    Developed market equities advanced despite inflation concerns, led by US shares.
•    Emerging markets showed continued weakness as Chinese equities struggled.
•    We still see on balance a reflationary regime, even as the Fed signals tightening ahead.

JOHCM. NAV of Share Class A in GBP, net income reinvested, net of fees. The A GBP Class was launched on 30 April 2018. 

The Fund’s objective is to offer monthly income generation consistent with long-term capital growth. In order to make monthly distributions, all or part of fees and expenses may be charged to the capital of the Fund. By charging the fees and/or expenses to capital, capital may be eroded and income will be achieved by foregoing the potential for future capital growth. The annual management charge is charged to the capital of the Fund.

Past performance is no guarantee of future performance. The value of investments and the income from them may go down as well as up and you may not get back your original investment. The information contained herein including any expression of opinion is for information purposes only and is given on the understanding that it is not a recommendation.
 

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”).  

In addition to investing in issuers which meet the Fund’s financial criteria, J O Hambro Capital Management Limited (“Investment Manager”) seeks investment opportunities in durable businesses that it considers to be well-adapted to the regulatory and social landscape of the future. In the Investment Manager’s view, such businesses are those which do not undermine, if not advance, the achievement of the UN’s Sustainable Development Goals. 

The Fund will also seek to help companies improve on Environmental, Social and Governance (“ESG”) issues and encourage their continuous improvement by engaging in dialogue with them on a regular basis and highlighting specific areas of improvement which will be monitored over time. The team believes this approach will be additive to the fund’s financial objectives of regular income generation and long-term capital growth. 

The Fund is climate aware and seeks to reduce the Fund’s exposure to sectors causing adverse environmental impacts. 

In order to achieve such characteristics within the Fund, it applies exclusions to the selection of underlying assets as part of its investment decision-making process. The issuer of a security is considered “non-sustainable” if it does not meet one of these ESG key performance indicators, including non-compliance with the UN Global Compact. 

The Investment Manager excludes companies which derive 10% or more of their revenue from pornography, manufacture of controversial weapons (such as landmines and cluster munitions) or tobacco production, and companies with majority of revenues from oil sands production. 

Additionally, the Investment Manager relies on ESG scores and its own proprietary dashboard to assess and monitor its investments and seeks to exclude the businesses that it believes to be in the lowest quintile of ESG related risk factors across the fund’s global, all-cap investment universe (a “best-in-universe” approach). This criterion serves as a first filter. The Investment Manager then uses its own internal assessments as well as a third-party provider data in its ESG assessment process which results in a numerical score assigned to each issuer. The ESG scoring criterion will be applied to at least 90% of the issuers in which the Fund is invested. The Investment Manager then further reduces the universe by taking non-financial criteria into consideration before performing a financial analysis and further ESG-related analysis in an integrated fashion, leading to the construction and management of the portfolio. These selection criteria may not be disapplied or overridden by the Investment Manager.  In order to measure and monitor the environmental characteristics of the Fund, the Investment Manager incorporates climate-related ESG risks into valuation and construction. The Investment Manager then monitors the carbon footprint and other climate-related data of the portfolio and keeps track of current high carbon emitters and whether they have committed to align with the 2015 Paris Agreement. 

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 in relation to their employees, customers and supply chain.   

The Investment Manager treats climate change adaptation as a material factor within its investment approach in accordance with the EU’s Taxonomy Regulation (TR) (Regulation (EU) 2020/852) and amending Regulation (EU) 2019/2088. Climate change-related risks and opportunities could impact the long-term sustainability of cashflows, and ultimately returns to investors; the Investment Manager’s commitment to managing climate change adaptation risks and opportunities has been formalised through its investment approach and various responsible investment initiatives. The Investment Manager promotes climate change adaptation in the following way:  

•    A prohibition on investment in companies actively investing capital expenditure in greenfield thermal coal fired-power generation plants or companies whose primary revenue driver is the extraction and/or the production of fossil fuels that have not committed to align with the goals of the Paris Agreement on Climate Change.

•    During the stock selection process, the Investment Manager will actively prefer companies with low GHG emissions intensive business models and/or companies with transitioning and decarbonising business strategies aligned with the long-term temperature goal of the Paris Agreement.

•    Routine measurement is undertaken of the scope 1 and scope 2 GHG emissions of investee companies; GHG intensity of investee companies; capital expenditure invested by investee companies in solutions that contribute towards climate change mitigation; Fund exposure to coal-fired power, natural gas, and renewable energy generation as a percentage of the company’s revenue and adjusted for Fund specific weights; and the percentage of investee companies with net zero targets.

•    Active engagement with investee companies to encourage, for example, the timely decommissioning of coal-fired power generation, the capture and sequestration of carbon emissions or other mitigation efforts, establishment of emissions reduction targets, the transparent pricing of the climate change externality, measures to support a responsible transition, and executive accountability through measures such as variable remuneration. Such engagement also extends to proxy voting activities.

•    Careful review of the climate change risk exposure profile of each potential investee company prior to initiating a position. Assessment of a potential investee company’s capital expenditure investment plans for climate resiliency and adaptation measures. The assessment will be dependent on the level of materiality.

•    Active engagement with companies to encourage, for example, the timely investment in resiliency and adoption measures, the use of climate change science to inform internal risk management and reporting, and appropriate insurance policies.

However, due to a lack of reliable, timely and verifiable data, as the data to conduct the analysis is not yet available from investee companies, the Investment Manager is unable to make a full assessment of the Fund’s investments against the TR’s Technical Screening Criteria (“TSC”).  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 provide an updated statement on the percentage of the Fund’s alignment with the TR’s TSC once sufficient data is available.

The do no significant harm principle only applies to those investments underlying the financial product that take into account the EU criteria for environmentally sustainable economic activities. The investments underlying the remaining portion of this financial product do not take into account the EU criteria for environmentally sustainable economic activities.
 

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. 

A description of the extent to which environmental and social characteristics are met will be available as part of the annual report which will be published on this website once available. The Fund’s most recent annual report does not include any information pursuant to SFDR.