The objective of the JOHCM UK Dynamic Fund is to achieve long-term capital growth. The Fund will aim to achieve this objective mainly through investments primarily drawn from companies listed on either of the two primary markets of the London Stock Exchange: the main market and AIM. At least 75% of the Fund’s assets will, at all times, be invested in equity securities of companies domiciled or exercising a predominant part of their economic activity in the United Kingdom. On occasion the Fund may utilise this position to invest a proportion of its assets in equities listed on a recognised exchange outside the UK. Investment will be made primarily in equity securities which are readily marketable, but investments will also be made in equity securities of smaller companies which can be more lightly traded. The portfolio is likely to be fairly concentrated with the Fund typically holding equity interests in between 35 and 50 different companies.

The Fund performed solidly in December capping off a strong quarter. Performance over the month was driven largely by stock selection, with cyclical names (e.g. Barclays, ITV Aggreko and Melrose) benefiting from the news of successful Covid-19 vaccine trials at Pfizer/BioNTech and Moderna.

The portfolio was also helped by an improving UK housing demand backdrop. A full-year trading update from Crest Nicholson was significantly ahead of consensus forecasts on all metrics but most notably cash, leading to an earlier than expected reinstatement of the dividend. The shares remain undervalued, in our view, and the forecasts underappreciate the recovery that is going on there.

Reflecting on the Fund’s 2020 performance as a whole, it was as much about a lack of enough notable winners rather than the presence of outsized losers that caused the underperformance. The Covid-19 pandemic led to a huge divergence in stock-level performance as the market sought to sift through the winners and losers. Many of the perceived and actual ‘winners’ reside in more growth-oriented digital, ecommerce, technology and biotechnology related areas – not the standard preserve of this business transformation fund and therefore difficult for us to chase.

We have reflected on not having enough winners in 2020 and whether we should be doing something about it. Our view is and has always been that the answer lies within the Fund’s holdings. Our future winners are plotting their path to that success, in our opinion, as we speak. Whilst Pearson, Convatec, Centrica, Aviva, DMGT and St Modwen were the largest relative winners of Fund capital in 2020, they are not yet everyone’s cup of tea. We believe that with purposeful management and clear strategies, it is just a matter of time. Our way of doing something about it is to increase exposure to these names.

The Fund has always tried to generate its returns through the idiosyncrasies of management and strategic change, with returns over time broadly independent of wider macro or thematic trends. Our particular style of doing things is not pure value but value plus – value plus change. That means backing relatively cheap companies where management are knowingly acting to increase stakeholder value through strategic and business improvements.  It worked for a while and no doubt will work again. This does mean that we rely on positive management action, though, which often takes time and, therefore, we may lag a pure ‘value’ recovery for a period. 

With an increasingly speculative market that is focused on simplifying investments to narrow thematic buckets (lockdown winners vs. re-open winners) and styles (value vs. growth) companies with more nuanced and/or qualitative elements to their investment story are becoming increasingly mispriced. This provides us the opportunity to further concentrate capital into the Fund’s higher conviction positions. The number of stocks in the portfolio is falling and the top ten positions now account for over 41% of absolute capital, up from 34% at the beginning of 2020. This process will continue and we expect will be the route to this Fund’s recovery.

Performance data for the period 16 June 2008 to 23 October 2009 is for Ryder Court UK Dynamic Fund. From 23 October 2009 onwards, the Fund converted to the JOHCM UK Dynamic Fund.

Data shown net of fees, net income reinvested. Please note that all fund performance is shown against the FTSE All-Share TR 12pm adjusted. Performance of other share classes may vary and is available on request. Where shown, monthly returns table shows compounded discrete monthly performance. Performance of other share classes will vary and is available on request. During the period 16 June 2008 to 23 October 2009 the performance record is based on the pre-existing share class that had a higher management fee.

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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. 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.