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.

Fueled by historically unprecedented levels of government stimulus globally and a torrent of liquidity from major central banks to stave off the worst economic effects of lockdown, stock markets staged a remarkable rally in Q2. US equities led the recovery in financial markets, with the S&P 500 index returning to bull market territory with a 20.5% gain in dollar terms, helped in large part by the super-charged technology sector as growth stocks maintained their market leadership and investors backed ‘stay at home’ winners with business models unaffected by the Covid-19 pandemic lockdown. International equity markets also enjoyed double-digit gains, as did emerging markets. Fixed income markets also rallied further. Investors’ rediscovered appetite for risk assets was reflected in a powerful quarter for high yield and investment grade debt, led by European high yield. US high yield markets were also a beneficiary of direct buying the Federal Reserve. With the monetary spigots fully opened, the gold price climbed higher in June, having been range-bound earlier in the quarter. 

The Fund returned 10.8% in dollar terms. The bulk of the Fund’s sizeable positive return came from our equities allocation (contributing +7.4%), with broadly equal contributions from international and U.S. equities. The portfolio’s Europe ex U.K. names were notably helpful as European stocks benefited from a substantial and co-ordinated policy response from EU members. Our corporate bond holdings accounted for all of the positive contribution from our fixed income holdings (+1.7% contribution), with our U.S. and international corporate bond exposure making broadly equal additions. Our gold holdings have proved to be a useful hedge in this year of pronounced volatility, with both miners, such as Barrick Gold, and bullion investments, such as SPDR Gold Trust, adding material value (+1.9% contribution). With the prospect of unfettered and continued central bank money printing, we believe gold will have an important ongoing role to play in any portfolio that seeks resilience. Given these dynamics, we had elected to increase our exposure to gold during Q1 as part of our defensive component of the portfolio.

As noted above, the technology sector has been the star stock market performer this year and has recovered well from Q1 volatility. Within this sector, Microsoft and Facebook were key contributors. The Q1 sell-off provided us the opportunity to add capital to world-leading tech businesses at compelling prices. Our holding of DCP Midstream 7.375% perpetual was the largest individual contributor as the energy sector recovered from Q1’s weakness along with oil prices. Preferred shares also suffered in Q1 due to bouts of illiquidity in this asset class. Many, including DCP Midstream, have recovered well from the lows. We have been allocating increased capital to preferreds this year as we see it as an area of value. 

Turning to the detractors, Wells Fargo was hurt by the Federal Reserve’s stress test results. It is an under-managed bank in the midst of a substantial turnaround, which we believe will unlock value. These stress tests do not consider significant ongoing government stimulus, so are arguably overly conservative in their assumptions. 

Great Eagle and Jardine Matheson were both weak as Hong Kong shares experienced volatility during Q2 following the new security law enacted by the Chinese Government. We have seen signs of Chinese policymakers counteracting heavy-handed security legislation with copious economic stimulus. We believe Hong Kong-based investments currently represent an interesting and contrarian value opportunity. Certain recovery investments in the food service supply chain represent excellent opportunities. However, given the resurgence of Covid-19 cases in the United States, the timetable to recovery has potentially been pushed back, hurting shares of catering companies such as Compass Group. It has a solid balance sheet and is well-placed to gain share from weaker competitors when conditions further normalize. Lastly, our Vornado Realty Trust preferred shares were weak as sentiment around New York real estate was negative. Vornado has ample net asset value and financial resources and is a key player in the redesign of Pennsylvania Station. 

With markets recovering in Q2, we were net sellers of 400bps of equity after buying over 1000bps in Q1. Given broad uncertainty, we have sought a balanced approach to income. We have a blend of defensives and quality compounders in an attempt to provide stable income and longer-term capital appreciation as well as cyclical and recovery-oriented investments that can add some torque should things normalize faster than expected. In fixed income, we see value in preferred stock and hybrid capital, which are good examples of securities that can slip through the cracks. Volatility occurs in short sharp bursts, so it is important not to let market calm breed complacency. We continue to be ready to deploy capital should further air pockets arise. 

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.