Capping off a very disappointing year for investors across most asset classes, the fourth quarter of 2022 was the first quarter of the year to deliver positive returns in most major equity markets. Interest rates, which had risen sharply over the year as central banks around the world grappled with inflation, were generally stable during the quarter, while non-US currencies rallied, energy prices generally eased (thanks in part to warm winter weather in Europe) and authorities in China abandoned their zero-tolerance approach to Covid. While investors remain highly concerned about a potential recession in 2023, the fourth quarter marked a sense of relief that the inflation crisis, and the attendant tightening cycle, may be in the rear-view mirror.

The S&P 500 delivered a 7.6% total return in December, as the value subindex (13.6%) substantially outperformed the growth sub-index (1.4%). Stock indices outside the United States recovered sharply from year-to-date lows reached in September and October, as foreign currencies strengthened with the ECB and BOJ moving toward tighter monetary policy. The MSCI EAFE Index (dominated by Eurozone and Japanese equities) posted a 17.3% total return. The MSCI Emerging Markets index posted a 9.7% return for the quarter, fueled mainly by a turnaround in Chinese equities (the largest country exposure in the index) following a policy shift on reopening. The MSCI China index delivered a 13.5% total return in the fourth quarter; the change in sentiment towards China likely contributed to returns across most geographies and sectors.

Fixed income markets, from both a duration and credit perspective, saw mostly mild shifts in the fourth quarter of 2022. Interest rates, which peaked in the middle of the quarter and reached levels not seen since prior to the Great Financial Crisis, rose slightly from September through to December. The 10 year Treasury yield moved from 3.83% to 3.88%, while the 2 year Treasury yield rose from 4.28% to 4.43%. Both investment grade and high yield bonds experienced credit spread tightening as risk aversion abated across markets. The ICE BofA BBB US Corporate Index Option-Adjusted Spread fell from 2.06% to 1.72%, while the ICE BofA BB US High Yield Index Option-Adjusted Spread saw a more substantial decline and fell from 3.66% at the end of September to 3.09% at the end of December. Stable interest rates and tighter spreads drove a 4.3% total return for the iBoxx USD Liquid High Yield Index and helped high yield investors claw back almost a third of their 2022 losses.

Out top contributors for the quarter were Oracle, Air Products and Chemicals and Naspers. Oracle performed well on strong earnings results, demonstrating the resilience of its business model despite industry headwinds; Oracle finished the year with a -4.7% total return, significantly better than the Nasdaq Composite Index, which delivered -32.5%. Air Products and Chemicals ended the year with strength as a play on industrial recovery as well as spending related to the Inflation Reduction Act. Naspers, the South African holding company with a large stake in Tencent, benefited from the China resurgence.

Our top detractors for the quarter were PayPal Holdings, Equitrans Midstream and Meta Platforms. Concerns mounted during the quarter over Apple’s competitive threat to PayPal in digital payments. Shares of Equitrans were weak as a result of legislative setbacks in the company’s quest to launch a pipeline project in 2023. Investors in Meta Platforms grew frustrated over the heavy investment in metaverse initiatives, although the company signalled a change in trajectory later in the quarter.

While the fourth quarter provided some meaningful relief, 2022 will register as one of the worst years in recent memory for both equity and fixed income markets. Tremendous uncertainty remains as to the extent and duration of central bank tightening needed to bring down inflation. With sharp drawdowns in equity market valuations and interest rates much higher than they were a year ago, it is difficult if not impossible to know if the worst is behind us or if further pain lies ahead. We remain focused on holdings that we believe are justified even if these macroeconomic headwinds persist, while retaining flexibility at the portfolio level to take advantage of opportunities that may emerge from the volatility.

Sources for all data: JOHCM/Bloomberg (unless otherwise stated).

Benchmarks: The MSCI World Index is a broad global equity index that represents large and mid-cap equity performance across 23 developed market countries. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed or produced by MSCI.

Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). BARCLAYS® is a trademark and service mark of Barclays Bank Plc (collectively with its affiliates, “Barclays”), used under license. Bloomberg or Bloomberg’s licensors, including Barclays, own all proprietary rights in the Bloomberg Barclays Indices. Neither Bloomberg nor Barclays approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith. The Bloomberg Barclays US Aggregate Bond Index is a broad-based benchmark that measures the investment grade U.S. dollar-denominated, fixed rate taxable bond market, including Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM passthroughs), ABS, and CMBS.

ICE BofAML BB-B Global High Yield Constrained Index contains all securities in The ICE BofAML Global High Yield Index rated BB1 through B3, based on an average of Moody’s, S&P and Fitch, but caps issuer exposure at 2%. Investing in an index is not possible.

BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). BARCLAYS® is a trademark and service mark of Barclays Bank Plc (collectively with its affiliates, “Barclays”), used under license. Bloomberg or Bloomberg’s licensors, including Barclays, own all proprietary rights in the Bloomberg Barclays Indices. Neither Bloomberg nor Barclays approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.

The performance data quoted represents past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. The Fund's current performance may be lower or higher than the performance data quoted. Investors may obtain performance information current to the most recent month-end, within 7 business days at www.johcm.com or by calling 866-260-9549 or 312-557-5913.

Returns shown, unless otherwise indicated, are total returns, with dividends and income reinvested. Returns for periods of less than one year are not annualized. Fee waivers are in effect; if they had not been in effect performance would have been lower.

The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure the equity market performance of emerging markets. The MSCI Emerging Market Index consists of the following 23 emerging market country indices: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates. Indexes mentioned are unmanaged statistical composites of stock market performance. Investing in an index is not possible.

Historical performance of the Emerging Markets Opportunities Fund for Class II Shares prior to its inception is based on the performance of Class I Shares, the share class most similar to Class II. The performance of Class II Shares has been adjusted to reflect differences in expenses.

*Expense ratios as stated in the latest prospectus. J O Hambro Capital Management Limited has contractually agreed to waive fees and reimburse expenses so that the Net Total Operating Expenses do not exceed the stated amounts until January 28, 2022.

Fund holdings, sector allocation, regional allocation and top 10 countries are subject to change without notification.

The performance data quoted represents past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. The Fund's current performance may be lower or higher than the performance data quoted. Investors may obtain performance information current to the most recent month-end, within 7 business days at www.johcm.com or by calling 866-260-9549 or 312-557-5913.

Returns shown, unless otherwise indicated, are total returns, with dividends and income reinvested. Returns for periods of less than one year are not annualized. Fee waivers are in effect; if they had not been in effect performance would have been lower.

*Expense ratios as stated in the latest prospectus. JOHCM (USA) Inc. has contractually agreed to waive fees and reimburse expenses so that the Net Total Operating Expenses do not exceed the stated amounts until January 28, 2024.