The Fund aims to achieve consistent capital appreciation over the longer term by investing in stocks of primarily UK-listed large and mid-sized companies. Up to 10% of the Fund may be in international stocks. A thematic, top-down process is used to identify stock ideas and then married to a rigorous approach to valuation. Portfolio construction is benchmark-unaware with roughly equally-weighted positions in typically 30-40 stocks reflecting high conviction management.

Our portfolio remains chock full of highly cash-generative businesses. There is no more important decision that company leaders must make, than how to spend that cash. Our preference has always been for investment back into the business so that the company’s market position becomes stronger and growth continues into the future. We are not fans of buybacks or of excessive dividend policies that starve a business of investment or weaken the balance sheet.

Two of the strongest performers during the period, Wood Group and SSE, are benefiting from a previous increase in investment in renewable energy and infrastructure assets. Wood Group reported an acceleration in its order book which is supportive of the group’s strategy to pivot growth towards green energy projects and infrastructure re-build. As at June 2021, the group’s order book was up some 18% on December 2020 levels. The group continues to prioritise deleveraging its balance sheet. It cancelled its dividend in 2020 and won’t be paying an interim dividend to support the working capital outflows which come with a pick-up in business activity. 

SSE rose over 10% during the month as the market increasingly recognises the value in its portfolio of offshore wind and hydro power generation which it has been investing in for over a decade. Whilst the company has done well to invest heavily in these new assets, we continue to believe the company is paying too large a dividend, which is causing unnecessary strain on the balance sheet. We have set up a meeting with the company’s new Chair to make our case for a more sustainable capital allocation policy.

Towards the end of the month Smiths Group announced that it was selling its Medical division. This division has sucked up a disproportionate amount of group cashflow in the past and delivered only mediocre top line growth. The sale should enable the company to focus its capital allocation on growing its four other market leading businesses where long-term prospects look far brighter.

At the start of August WPP announced strong interim results which clearly demonstrate the positive effects of capital allocation decisions made by the current management team over the last three years. During this period the group has made over fifty disposals and reduced debt from over $4bn to less than £1bn. Just as important as deleveraging have been the investments made in digital advertising and media assets. WPP is a leader in using AI to drive digital advertising and e-commerce and this is delivering accelerating growth in a business that had been struggling under its previous management team.

During the period we started a new position in Future Plc. The Bath based business is a global leader in specialist online media and includes web-sites such as Tech-Radar and Tom’s Guide. Its brand reaches a global audience of almost 400 million users and it has invested well in a platform of content and advertising delivery that is driving strong growth and is increasingly scalable. It complements a number of portfolio holdings that are investing in and benefiting from growth in digital advertising and e-commerce including WPP and Next.

Our holding in UDG was bought by private equity, at a better price than the original bid that we rejected. The appetite for UDG Healthcare, Morrison’s and other assets continues to demonstrate the value the UK market offers, particularly in world flooded with excess capital. 

The portfolio remains in good shape offering a concentrated exposure to the UK’s best-in-class assets. Our companies are allocating capital to areas that benefit from long term demand growth which we expect to drive the virtuous circle of more cash profit and ultimately higher share prices over time.

Data shown net of fees, net income reinvested. Performance of other share classes may vary and is available on request. Please note that all fund performance is shown against the FTSE All-Share TR Index. 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.

J O Hambro Capital Management Ltd is licensed by FTSE to redistribute the FTSE All-Share Total Return Index. All rights in and to the Index and trade mark vest in FTSE and/or its licensors (including the Financial Times Limited and the London Stock Exchange PLC), none of whom shall be responsible for any error or omission in the Index.

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 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 strategy, but is not required to comply with the full requirements of SFDR.

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.    In order to achieve this, the Investment Manager uses ESG scores to populate its own proprietary ESG scorecard which it uses to assess and monitor its investments.  The Fund seeks to avoid those companies it rates as “Failing to meet standards” on that proprietary scorecard. The selection criteria may not be disapplied or overridden by the Investment Manager. 

When an investee company is rated as ‘Failing to meet standards’ on its proprietary ESG scorecard, the Investment Manager will engage with that issuer for a period of up to 18 months to allow the company to implement change, otherwise the Fund will exit that position.  

The team recognises that ESG factors can create risks and opportunities for companies and look for companies who may benefit from this. 

In order to measure and monitor the environmental characteristics of the Fund, the Investment Manager utilises a proprietary scorecard which measures each investee company against not only financial and business characteristics, but also relevant social and environmental metrics.  The Investment Manager will also consider data provided by a third-party data provider, although this will not necessarily directly influence whether a company will be bought or sold by the Fund. 

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 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.