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.

In the first half of August, we witnessed a continuation of the “relief rally” that took place through much of July.  By mid-month, the S&P 500 reached its highest level since early May, as interest rates remained toward the low end of the range they had occupied in recent months.  Sentiment shifted sharply, however, in the second half of the month especially with comments made by Fed Chair Powell at Jackson Hole which were interpreted as incrementally hawkish.  By the end of the month, concerns around Fed tightening, coupled with fears in Europe around energy shortages, produced a generally negative outcome for risk assets globally. 

The S&P 500 delivered a -4.1% total return in August, with the growth sub-index (-5.3%) faring worse than value (-2.8%) in a reversal of the tech-led strength from the prior month.  Non-US stocks modestly underperformed US markets as the MSCI EAFE Index posted a -4.8% total return.  Notably, the Euro slid below the psychologically important level of parity with the US dollar towards the end of the month, as anxiety mounts around Russia’s gamesmanship with natural gas supplies.  The MSCI Emerging Markets index posted a modestly positive return (+0.4%).
 
Fixed income markets generally followed the same trajectory of equities in August.  Market expectations for a “goldilocks” soft landing scenario reached their peak in mid-August, as indicated by rates and credit spreads, but evaporated as the month concluded.  The 10-year Treasury began the month at a 2.65% yield and finished at 3.2%, with the bulk of that move occurring in the second half of the month.  The 2-year Treasury yield reached its highest level since the pre-GFC tightening cycle, ending the month at 3.50% versus 2.89% at the end of July.  The ICE BofA BB US High Yield Index Option-Adjusted Spread moved from 3.18% at the end of July to 3.44% at the end of August.  With base interest rates moving up as well, the effective yield of the BB index closed the month at 6.74%, making its way closer to the peak effective yield of 7.17% which was achieved at the end of June, when equity markets were close to their lowest levels for the year.    

Our top contributors for the month were Embotelladora Andina, Bill.com and New Fortress Energy.  Andina, the Chilean distributor for Coca-Cola, and Bill.com, a financial software company, both performed well on strong second quarter earnings and a positive outlook.  New Fortress Energy benefited as a key infrastructure provider for Liquefied Natural Gas, as LNG prices have surged globally.

Our top detractors for the month were Dollar Tree, Sanofi and International Flavors & Fragrances.  Dollar Tree reduced full year earnings guidance as new management seeks to invest in price in its Family Dollar segment and absorbs other cost pressures.  Investors punished Sanofi shares amidst fears surrounding its ongoing litigation related to acid reflux product Zantac.  IFF performed well in July and into August with well-received earnings results but sold off towards the end of August with the broader reversal in sentiment.

Throughout 2022, investors have wrestled with the uncertainty of the Fed tightening agenda.  August has not been an exception to this pattern of volatility.  Other crucial unknowns remain, especially with respect to Europe’s ability to withstand the shock of high gas prices and China’s ability to navigate challenges ranging from Covid to a faltering property market.  In both equity and credit markets, prices have declined substantially this year, which creates opportunity for long-term value investors like ourselves, which we have looked to exploit.  Simultaneously, we feel we are well-positioned to take advantage of severer volatility later in the year, to the extent some of the more negative scenarios with respect to the above risk factors play out.

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. 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. 

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.