The JOHCM Global Select Fund aims to achieve its objective by investing in a portfolio of global equity securities listed on any Recognised Market. Under normal market environments it is the intention to be near-fully invested, and at no time will less than 80% of the Fund’s total net assets be invested in such securities. The benchmark of the Fund is the MSCI ACWI Index but the Fund will be managed on an ‘unconstrained basis’ with no restrictions in terms of regional or sector allocation versus this benchmark.

We outperformed a falling index in November (in US dollar terms), a month that saw some of the more speculative parts of financial markets fall quite hard. Bitcoin, for example, fell over 10% during the second half of the month. Both asset allocation and stock selection contributed to our outperformance in November. From an asset allocation perspective, being overweight the technology sector and being underweight the communication services, energy and financial sectors added value. Stock selection was positive in most sectors, particularly within healthcare (BioNTech, Novo Nordisk) and consumer staples (Estée Lauder), although this was slightly offset by negative stock selection in the industrial sector (wind turbine stock Vestas issued a profit warning; we sold the stock). 

Slower global economic growth and slower earnings growth lies ahead and markets are beginning to worry about stagflation (slowing growth with rising inflation). A moderation in growth next year will probably allow supply chains to catch up and inflation to fall, which is already happening in some commodity markets. China was the first major economy into, then out of COVID and then the first to slow down again - it will probably be followed by the US, and Europe, which should ease inflationary concerns going forward. 

Current stagflation concerns are therefore probably overstated in the short term, and it is probably still too early to get very defensive. The defensive SHUT sectors (Staples, Healthcare, Utilities and Telcos) are still not really outperforming despite the market sell off, and credit spreads remain well-behaved. So, as long as fiscal and monetary policy tightening does not happen too quickly, we should see one of the biggest equity bull markets continue, although we do have a plan for the bear market when it finally appears. As ever, we remain followers of Rüdiger Dornbusch’s Law: “the crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought.” 

Many investors seem dogmatically stuck on the ‘Value’ versus ‘Growth’ debate when the truth is pragmatically somewhere in the middle, depending on the business cycle. This is why we combine Growth, Value and Momentum factors over the cycle. Value usually performs best during the first year of an economic recovery, when earnings growth rates are accelerating. Growth then usually performs better after that, as earnings growth rates start to decelerate - which is what is now starting to happen. Year to date, Value and Growth performance has been roughly equal, while the Momentum factor has significantly underperformed as it has beenwhipsawed by several rotations between Value and Growth.

Cyclicals are called cyclical for a reason, as most of their relative outperformance usually occurs within 6-18 months of the recovery from a recession when they have the best relative earnings growth. Stable growth usually outperforms during the mid to late cycle as by this point they have the best relative earnings growth. We do not see any reason for this historical early to mid cycle shift to change, from early cyclicals (value) to mid cycle compounders (growth), so we are positioned accordingly. For example, parts of the healthcare sector are beginning to improve as they are no longer relatively expensive and their relative earnings growth is beginning to improve as we pass peak earnings/economic growth. However, as the economic cycle matures in 2022 we expect significant volatility and rotation across our three scenarios below.

We remain 75% bullish and 25% bearish. The highest probability outcome is still “one of the biggest ever equity bull markets, followed by one of the biggest ever equity bear markets” but some early warning signs are flashing so we will keep an open mind in a fast changing world.

• Scenario 1: 40% - Equity markets rally with the old leadership, i.e. stable growth & high quality stocks as growth slows.
• Scenario 2: 35% - Equity markets rally with new leadership, i.e. cyclicals & financials if growth is better than expected
• Scenario 3: 25% - Equity markets fall if growth slows faster than we expect or if fiscal/monetary policy is tightened. 

If policy makers recognise and react to slowing growth, we will probably move to 80% bullish, 20% bearish (45/35/20), if not, we will probably get more bearish sometime in 2022.

A GBP	A EUR	A USD
B GBP	B EUR	B USD

 

JOHCM/MSCI/Bloomberg/Lipper.

Data shown net of fees, net income reinvested. Please note that all fund performance is shown against the MSCI AC World NR 12pm adjusted in GBP. 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 1 August 2012 to 19 March 2013 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”).  

In looking for investments, J O Hambro Capital Management Limited (“Investment Manager”) seeks to avoid investing in companies which contribute to significant social and/or environmental harms, and thereby fail environmental, social and governance (“ESG”) key performance indicators which are directly integrated within all aspects of the investment process. 

In order to achieve this, the Fund applies exclusions to the selection of underlying assets as part of its investment process, including an exclusion for businesses that are rated as ‘Severe’ by Sustainalytics, ‘CCC’ by MSCI ESG or assessed as ‘non-compliant’ with the UN Global Compact. 

In order to support the reduction of adverse environmental impacts of the Fund’s portfolio, and in particular its contribution to climate change, the Investment Manager excludes investments in companies that: 

1. derive 10% or more of their total revenue directly from extraction, exploration, distribution, or refinement of fossil fuels (coal, oil and natural gas), or fossil fuel-based power generation.  

* Companies with a climate transition plan may be exempted from this exclusion, provided that they have in place a Paris Agreement aligned transition plan and produce climate-related financial disclosures annually, which in both cases we consider credible.

These selection criteria may not be disapplied or overridden by the Investment Manager unless it is a fossil fuel company with a Paris Agreement-aligned climate transition plan and it produces robust climate-related financial disclosures annually, which in both cases the Investment Manager considers credible. 

Also excluded, to avoid contributing to social harms, are companies that: 

• produce tobacco; 
• manufacture controversial weapons; 
• derive 10% or more of their total revenue from the production of alcoholic beverages; 
• derive 10% or more of their total revenue from the manufacture, ownership or operation of gambling facilities, gaming services or other forms of wagering; 
• derive 10% or more of their total revenue from the manufacture of non-controversial weapons or armaments; or 
• derive 10% or more of their total revenue from the manufacture or distribution of pornography. 

Additionally, the Investment Manager recognises that ESG factors can create risks and opportunities for companies and as such incorporates ESG risks into their analytical framework and portfolio construction.  

In order to measure and monitor the environmental and social characteristics of the Fund, the Investment Manager will review a variety of internally- and externally-generated ESG data produced by its third-party data providers and published by its investee companies. This allows the Investment Manager to review performance against those environmental and social characteristics across all four dimensions of the investment process. 

The Investment Manager treats climate change mititgation and adaptation as a material factor within its investment approach in accordance with the EU’s Taxonomy Regulation (Regulation (EU) 2020/852 and amending Regulation (EU) 2019/2088). Climate change poses fundamental risks and opportunities that can affect the long-term performance and value of investments.

The Investment Manager accounts for and promotes climate change mitigation and adaption factors by utilising the following methods:

•    There is a preference for companies with low exposure to fossil fuels, through the Fund actively not investing in companies where extraction, exploration, distribution, or refinement of fossil fuels (coal, oil and natural gas) or fossil fuel-based power generation account for 10% or more of total revenue.

•    The Investment Manager may though disapply these selection criteria to support transitional initiatives, where companies have a transitioning or decarbonising business strategy, aligned with the long-term temperature goal of the Paris Agreement on Climate Change. 

•    The Investment Manager undertakes active engagement with certain companies that have significantly below average sustainability characteristics but a high propensity for transformation, and therefore supports change. 

Due to a lack of reliable, timely and verifiable data, 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. 

The Fund uses the MSCI ACWI Standard 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.