J O Hambro Capital Management: It's the supply-side, stupid!

Rachel Reutter Senior Fund Manager | Michael Ulrich Senior Fund Manager

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Fund overview

• The strategy aims to preserve and grow client capital through active management of a concentrated portfolio of listed UK equities.
• The team invests in high quality companies that generate predictable cash flows and have robust balance sheets when they are attractively valued.
• The Fund is run with an absolute mind-set both in terms of valuation and in making investments irrespective of benchmark weightings.
• Environmental and social characteristics are promoted throughout the investment decision making process, please click here for further details.
• Benchmark: FTSE All-Share Total Return Index.
• The use of the Index does not limit the investment decisions of the fund manager, therefore the composition of the portfolio may differ significantly from those of the Index.
• Please refer to the Prospectus/KIID for further information.

Q2 2022 fund performance and positioning
JOHCM UK Opportunities Fund Periodic
performance (%) to 30.06.22

Past performance is no guarantee of future performance. The value of an investment can go down as well as up and investors may not get back the amount invested. For further information on risks please refer to the Fund's KIID and/or the Prospectus.

Source: JOHCM/Bloomberg/FTSE International. NAV of share class A in GBP, net income reinvested, net of fees, as at 30 June 2022. Benchmark: FTSE All-Share TR Index (12pm adjusted). Performance of other share classes may vary and is available upon request. Inception date: 30 November 2005. *Lipper Hindsight, IA UK All Companies Sector Rankings to 30 June 2022. Note: The current managers took over the fund on 1 October 2017. 1 Annualised.

Across global equity markets, higher inflation, leading to higher interest rates has brought a much-needed dose of reality to the valuations of loss-making, cashburning technology stocks. Excess liquidity, which flooded its way into markets and in particular into cryptocurrencies, SPACs, private equity and unproven business models, is now finding its way back out.

From a period of compressing the price component of the ‘P/E’ equation, the market has since turned its attention to marking down the earnings of companies with any form of cyclicality. So far, the companies within the fund have unanimously reported positive surprises, generally driven by the thematic drivers of growth we’re backing, and by increased levels of investment in new technologies and products which management teams have undertaken in recent years.

For a fund which avoids over-valuation and has a core of well-invested companies with a high degree of recurring revenues, it is disappointing to report a quarterly decline of 7.17%. This performance compares to the FTSE All Share which has fallen 5.50%. The long-term prospects of all the companies within our concentrated 29-stock fund remain strong, and hence we have made no big changes to the portfolio. This year we have used market weakness to add three new stocks to the fund and you can expect us to continue to use our firepower as valuation opportunities arise.

Taking a closer look at the detractors:

The portfolio holdings that have suffered the greatest share price declines during the period are also businesses that we expect to deliver strong growth for many years from here. What differentiates the companies with good long term growth prospects in our portfolio is their track record of cash generative and profitable growth, and valuation starting points that offered upside in the context of the growing cash flows they’re delivering.

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