The Fund aims to achieve long-term capital growth and to generate a dividend yield that is above that of the FTSE All-Share Index average. The Fund focuses predominantly on stocks within the FTSE 350 Index that generate a prospective yield above that of the FTSE All-Share Index average. The Fund's performance benchmark is the FTSE All-Share Total Return Index denominated in sterling.Please note that for capacity reasons the Fund is now 'soft-closed' to new direct investors.

Market review:
The US Federal Reserve commentary was hawkish this month, and bond yields continued to rise. This was most dramatic in the UK, where the 10 year bond moved up considerably. UK economic growth slowed, but it did not collapse. UK company results were solid and economic data points, such as job vacancies, retail sales and UK Services PMI, remained positive. 

The focus of the month was the continued rise in energy prices. Newly installed Prime Minister Liz Truss is expected to action on policy within days of her premiership. Policy could include a ‘cap on the energy price cap’, which could mean we will pass peak UK inflation in the next few months, rather than the predicted 15-20%.

Performance:
The UK market finished lower in August, with the FTSE All Share total return index falling 1.42%. The fund modestly underperformed, recording a return of -1.74%. Year to date the fund is down 5.08%, behind the index return of -2.07%. 

On a stock level, BP and Diversified Energy were both up 13-15% in relative terms. Aviva and Lookers were up around 10% on the day of the results with Lookers beating forecasts and Aviva signalling additional annual excess free cashflow. TP ICAP exceeded expectations and ended the month up 30%. 

Offsetting these positives, most other areas of the Fund were sluggish. Curry’s results were disappointing. Small caps were very weak, with many falling 5-10% relative. Both the Fund’s housebuilders, Vistry and Bellway, fell around 12% in relative terms, as did both our media holdings (WPP and ITV). DS Smith was also weak.

Portfolio activity:
Our oil and mining exposure currently represents 28% of the Fund. The mining position is focused on two large caps, Glencore and Anglo American, and two small caps, Kenmare and Central Asia Metal. In the oil position, we kept BP to 3% of the fund value, continued to control the exposure in Diversified Energy and moved part of the released capital towards Shell. In our construction position, holdings in Tyman, Bellway, Page Group and Wickes were added. First Group was added to the fund, following the withdrawal of bid interest. We continued to reduce our position in Rio Tinto and have been patient in the sales process to ensure we get maximum value.

Outlook:
The stock market is anticipating sharply deteriorating economic growth and we have built this weakening into our modelling on a stock-by-stock basis. Seven stocks currently make up nearly quarter of the UK market and they are all on very high valuations. The gap between the operational performance / newsflow at a stock level and share prices are close to the widest it has ever been. When there are periods such as this, the Fund tends to struggle; however, these times tend to be a prelude to very strong performance, as happened following the TMT bubble, the Global Financial Crisis and more recently following the initial six weeks of Covid. We believe we are at one of those points in time again. 

The Fund is now expected to yield 5.5% for 2022. As we showed in our recent paper, yield has only been higher twice in the Fund’s 18-year history. 

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.

FTSE International Limited (“FTSE”) © FTSE 2017. The Industry Classification Benchmark (“ICB”) and all  rights in it are owned by and vest in FTSE and/or its licensors. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under licence. Neither FTSE, nor its licensors accept any liability for any errors or omissions in the ICB. No further distribution of ICB is permitted without FTSE’s express written consent.

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. 

The information set out below relates to the Irish-domiciled fund which has been established for this strategy. To date this fund has not yet been launched. The UK-domiciled fund follows the same investment approach but is not required to comply with the full requirements of SFDR and the Taxonomy Regulation.

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 invest only in companies that meet minimum sustainability practices and have a coherent and well-articulated approach to sustainability to remain relevant to their customers, investors and society in general. The Investment Manager recognises that companies which fail to do so will progressively struggle.   

In order to achieve the above, the Investment Manager uses ESG scores to assess and monitor its investments and seeks to exclude businesses that are rated as ‘CCC’ by MSCI ESG or are assessed as ‘non-compliant’ with the UN Global Compact.  When an investee company no longer complies with any of these standards, the Investment Manager will engage with that issuer for a period of up to 18 months to allow the company to implement the necessary change, otherwise the Fund will exit that position.  The selection criteria may not be disapplied or overridden by the Investment Manager. 

The exclusion criteria referred to above will be applied prior to making any investment and the Fund’s portfolio will be monitored for any investments which breach these exclusion criteria on a periodic basis. For this purpose, the Investment Manager will rely on data (and the ESG definitions aligned with that data) from its third-party provider, ISS, or such other source as the Investment Manager determines.  We utilise the UN Global Compact assessment of another third-party provider, Sustainalytics. 

In order to measure and monitor the environmental characteristics of the Fund, the Investment Manager will review the carbon footprint of the portfolio, the trajectory of change of its investee companies’ ESG ratings and environmental data published by those companies.  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.   

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. It is also important to note that given the geographical focus of the Fund’s strategy; companies within the investment universe might not be under any obligation to provide the data required under EU legislation.

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 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. 

The Fund uses the FTSE All Share Total Return 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.