JOHCM UK Equity Income Fund J O Hambro Capital Management (JOHCM) (2024)

This is a marketing communication.

Information on the rights of investors can be found here.

The investment promoted concerns the acquisition of shares in a fund and not the underlying assets. 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. Investmentsinclude 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.

This is a marketing communication.

Information on the rights of investors can be found here.

The investment promoted concerns the acquisition of shares in a fund and not the underlying assets. 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. Investmentsinclude 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.

After experiencing a greater-than-anticipated decline in inflation in October and November in the UK, there was a modest increase in the December data to 4% year-on-year, compared to 3.9% the previous month. Although we anticipate a marginal increase in January, we think that inflation will then continue its steep fall. With household energy bills expected to decrease again in April and food price inflation now receding, it is likely that inflation will be in the range of 2—2.5% by the second quarter of this year.

Following two stronger months for the market and the fund, January saw a market pull back and the fund underperform. The FTSE All Share fell 0.99% over the period, with the fund down 2.19%. In the financials sector, insurance stocks were up slightly, and banks were down slightly. Standard Chartered was weak, influenced by a few brokers who reduced forecasts by 2—3%. This month, one of the Fund’s worst performers was Kenmare. The shares fell in a delayed reaction to a pre-Christmas announcement that detailed (a) lower production expectations in 2024, (b) higher costs on their main capex project and (c) the likelihood that the dividend policy would focus on the payout ratio of 20-40% rather than trying to keep it at a flat absolute level, which had been previously noted. In the mining sector, Glencore fell, whilst Kenmare (see below) fell. The prevailing negative sentiment towards China significantly influenced both the former and the sector overall. Within the oil sector, Diversified Energy continued to remain weak.

We believe that the UK continues to be one of the cheapest asset classes globally and is also cheap when compared to its most recent historical valuation range. This cheapness is evident when we compare the Fund, now in its 20th year, to its own history. Regardless of the metric used, the Fund is currently around its lowest valuation since the depths of the Global Financial Crisis. One of these measures is the Fund dividend yield, which is displayed on the first graph below. On the second graph, we display the discount at which some of our holdings trade compared to their global equivalents, highlighting the significant difference in valuation.

The response to this trend has been evident in the boardroom. On average, 5% of each of our companies were acquired through share buybacks last year. This represents a colossal amount of de-equitisation that will enhance future earnings and dividends. With this year expected to see another large number (we estimate slightly less at c3-4%), the cumulative impact of these actions is material. Additionally, we anticipate an increase in M&A, with boards increasingly exploring strategic changes to unlock value, such as the Real Estate Investors example, described above. These actions will continue to percolate under the surface, driving value incrementally over time.

Post 2009, when valuations were comparable to their current levels, was one of the most potent periods in the Fund’s history in performance terms. The following graphic below illustrates the differences between then and now. Despite the inherent risks, such as the current situation in the Middle East, the current foundations are considerably more robust than they were at that time.

The convergence of low valuations, our optimistic prospects for both the domestic and global economy, and interest rates that have peaked is a very attractive combination. With a Fund dividend yield of 5.65% and the compellingly low valuations outlined in this report, we remain confident in the outlook.

This is a marketing communication.

Information on the rights of investors can be found here.

The investment promoted concerns the acquisition of shares in a fund and not the underlying assets. 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. Investmentsinclude 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.

This is a marketing communication.

Information on the rights of investors can be found here.

The investment promoted concerns the acquisition of shares in a fund and not the underlying assets. 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. Investmentsinclude 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.

A GBP share class, since launch (30 November 2004)

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.

JOHCM/FTSE Group/Bloomberg/Lipper.

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.

This is a marketing communication.

Information on the rights of investors can be found here.

The investment promoted concerns the acquisition of shares in a fund and not the underlying assets. 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. Investmentsinclude 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.

This is a marketing communication.

Information on the rights of investors can be found here.

The investment promoted concerns the acquisition of shares in a fund and not the underlying assets. 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. Investmentsinclude 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.

This is a marketing communication.

Information on the rights of investors can be found here.

The investment promoted concerns the acquisition of shares in a fund and not the underlying assets. 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. Investmentsinclude 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.