The investment policy of the Fund is to invest in a portfolio of global equity securities listed on any
Recognised Market. The selection of equity securities will primarily be driven by a cashflow analysis from the perspective of a long-term business owner. At no time will less than 80% of the Fund’s total net assets be invested in such securities. The benchmark of the Fund, for performance fee calculation purposes, will be the Index but the Fund will be managed on an ‘unconstrained basis’ with no restrictions in terms of regional or sector allocation versus this benchmark.

The equity market reacted negatively to Fed Chairman Jerome Powell’s comments at Jackson Hole towards the end of August, which seemed to confirm that hopes of a pivot back to looser monetary policy was unlikely. We appear to remain in a much more inflationary environment than we have all become used to and, consequently, the process of reorienting portfolios to reflect a new reality is far from over. The negative take on this is that it suggests we should expect to remain in a world of elevated volatility for some time. Not that we spend much time thinking about overall market direction, but we do not expect they will return any time soon to the comfortable environment of back-to-back 15%-plus annual equity returns at the market level.

The positive take is that this process of rebasing will eventually end and find a level from which we can be much more confident about sustainable equity returns than we have been for some time. Powell’s explicit references to Paul Volcker and learning the lessons of the 1970s in his remarks on August 26th offer hope that this rebasing process might take less time than it did then. In the meantime, we will continue to navigate through a volatile environment by maintaining our emphasis on quality franchises, balance sheet strength and valuation support.

The fund modestly underperformed the market for the month as a whole. It underperformed the rally in the first half of the month and outperformed the fall in the second half. Equity market volatility in July/August was driven by changing expectations of Fed policy in response to inflation data. Hopes are fading that inflation will fall sufficiently to prompt a genuine ‘pivot’ back to the looser monetary conditions of recent years. As a result, recent volatility has been highest at the extremes of the market: cyclicals (reflecting risk of overtightening and recession/stagflation) and technology (reflecting risk of rising discount rates and derating). We are monitoring potential opportunities in both categories but made no major changes to the portfolio during the month and remain positioned in the ‘forgotten middle’.

 The outperformance of energy and financials sectors reflected rising interest rates and gas prices. Five of the fund’s top six performers were in these two sectors. This includes Cameco, the Canadian uranium miner, which rallied strongly on news that Japan is re-evaluating its stance on nuclear power.

Sanofi was the most notable detractor from performance, falling more than 15% on news of litigation risk relating to Zantac, which it acquired in 2017. We are taking this risk seriously but do not currently view it as evidence of inadequate internal controls and processes.
 

A GBP	A EUR	A USD	A A-Hedge EUR
B GBP	B EUR	B USD	B B-Hedge EUR
xx X - GBP	xx X - EUR	xx EUR - Non Dist	xx X - Non-Distributing

 

Source: JOHCM/Bloomberg/MSCI Barra.

Data shown net of fees, net income income reinvested. Benchmark: MSCI AC World NR 12pm adjusted. Performance of other share classes may vary and is available on request. 

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 annual management charge is deducted from the capital of the Fund. This will increase the income from the Fund but may constrain or erode potential for capital growth. Investing in companies in emerging markets involves higher risk than investing in established economies or securities markets. Emerging Markets may have less stable legal and political systems, which could affect the safe-keeping or value of assets. 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. In order to achieve this, the Investment Manager uses its own proprietary sustainability scorecard to assess and monitor its investments and seeks to exclude any businesses that it determines do not currently meet, or have a ‘weak commitment’ to meet, these ESG performance indicators (the “Sustainability Scorecard”). The team recognises that ESG considerations can create risks and opportunities for companies and look for companies who may benefit from this. 

The team focuses on longer term shareholder value that requires alignment of interest across stakeholder groups. The Sustainability Scorecard focuses on the social and environmental harms to which a company may contribute through its activities or products and services, and the extent to which the company is acting responsibly to reduce these harms.  The team’s definition of harm takes into account the following four categories:

1.    Climate change and carbon emissions
2.    Environment and ecosystems 
3.    Vulnerable communities 
4.    Harmful products 

A company’s harmfulness is then graded as either ‘Severe’, ‘Material’, ‘Modest’, or ‘Immaterial’, taking into account a number of factors. When considering a company’s commitment to change, a company’s commitment is categorised into: (1) Weak; (2) Partial; or (3) Strong. A ‘Weak’ commitment rating is given where the Investment Manager perceives there to be a lack of acknowledgement of harm caused, and/or a lack of sufficient targets to address it. 

The output of the Sustainability Scorecard is to rate companies on a five-tier scoring system that excludes investments with the lowest score (Tier 5) and, therefore, the Investment Manager will not own or will exit these positions as soon as reasonably possible. The team also puts an upper limit on their cumulative exposure to companies that score just above the lowest category.  The Fund will also exit any issuer within this category if there is no improvement over the course of two annual reporting cycles. The target of the Fund is therefore to ensure that stocks are excluded or divested in accordance with the Sustainability Scorecard.

The Investment Manager can then identify areas of targeted engagement with a company to effect strategic change that will promote better environmental and social outcomes. The Investment Manager engages with investee companies through active engagement and the exercising of voting rights. 

Although the Fund may invest in economic activities that contribute to an environmental objective within the meaning of the EU’s Sustainable Finance Disclosure Regulation (SFDR), the Investment Manager is not currently in a position to assess the proportion, as a percentage of the Fund’s portfolio, of investments in environmentally sustainable activities which are aligned to the EU’s Taxonomy Regulation (TR) (Regulation (EU) 2020/852) and amending Regulation (EU) 2019/2088.

This is due to a lack of reliable, timely and verifiable data for the Investment Manager to make a full and accurate assessment of the investments of the Fund against the TR’s Technical Screening Criteria in respect of climate change mitigation and climate change adaptation. 

As a result, the Investment Manager is unable to determine whether the underlying investments in the Fund contribute to climate change mitigation and/or climate change adaptation, or whether the Fund has investments in economic activities that qualify as environmentally sustainable pursuant to the TR. 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 revisit the TR disclosure requirements once sufficient data is available.

Investee companies must follow good governance practices. This requires investee companies to demonstrate sound management structures, employee relations, remuneration of staff and tax compliance.  The Investment Manager is currently a signatory to the UK Stewardship Code as of 2021 (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 All Country World 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.