- Clive Beagles and James Lowen have both managed the fund since launch, bringing a level of continuity that is quite rare to see
- The fund aims for income and capital growth by investing in unloved companies
- The fund has material weightings in medium-sized and smaller companies which increases risk
- The fund does not currently feature on the Wealth Shortlist of funds chosen by our analysts for their long-term performance potential
How it fits into a portfolio
J O Hambro UK Equity Income (JOHCM) aims to generate long-term growth in capital and in the income it pays to investors. The fund invests differently to some other UK equity income funds, focusing on the shares of unloved companies the managers consider to be wrongly priced. This approach means the fund can go through periods of underperformance while these companies remain out of favour. The fund also invests in smaller companies which can add risk. The fund could form part of an income focused portfolio, or part of a broader portfolio looking to add investments in UK companies.
The fund has been managed by Clive Beagles and James Lowen since its launch in November 2004. Beagles is a veteran UK equity income investor, having previously managed income funds at Newton from the mid-1990s. Lowen was previously an investment director at Newton involved with UK equity strategy and corporate governance issues. The managers are completely focused on this strategy, running no other retail funds. The length of this management combination brings a level of continuity that is quite rare to see.
The managers look for companies unloved by the wider market which deliver both a rising dividend and long-term capital growth for investors. Unlike some other UK equity income funds, they invest in companies of all sizes, typically investing around 48% of the fund in small and medium-sized companies. The managers do limit the amount invested in smaller companies to control risk. This means the portfolio, which is typically made up of 50-70 stocks can look quite different to the index.
The managers look for companies they believe will pay a higher dividend than the FTSE All Share index in the near term, which they believe will grow over time – although there are no guarantees. They have a strict yield discipline and if they forecast a stock will pay out less than the index they will remove it from the portfolio. The income and growth focus means the fund has a contrarian approach. This means the managers invest in out of favour areas of the market.
The managers are optimistic that on the whole, the UK market is in good shape with profits higher than their pre-Covid levels and many businesses being more financially secure with stronger balance sheets. They think that the inflationary pressures businesses and consumers have been battling are likely to abate in 2023 but don’t expect interest rates to fall quickly in response.
J O Hambro Capital Management is a boutique asset manager with a range of global, country or region-specific equity strategies. There’s no house view at JOHCM, and fund managers are free to invest in the best way they believe will achieve a fund’s aim.
JOHCM has typically attracted entrepreneurial established fund managers, who wish to manage funds with a clear alignment of interest between themselves and their investors. Fund managers are incentivised in-line with the performance targets and the growth in size of their funds. A percentage of their bonuses are paid in shares in the business, and a portion invested into the funds they run. This helps the fund managers to focus on long-term performance. It also prioritises the performance rather than purely maximising assets at the expense of performance.
The managers take environmental, social and governance (ESG) factors into account when analysing companies, believing that this can improve long-term returns. Analysis of governance factors has been a longstanding part of their process and more recently, environmental and social factors have grown in importance too.
J O Hambro believes that integrating ESG and sustainability risks into financial analysis enhances investment decision making and can improve long-term risk adjusted returns for clients. However, the firm doesn’t impose house views on its fund managers, instead supporting fund managers with the tools and resources required to integrate ESG and undertake stewardship in the manner most relevant to their investment approaches. This means that the quality of ESG integration across J O Hambro funds differs from fund to fund, although cluster bombs are excluded across the firm.
J O Hambro recruited highly-regarded sustainability expert Andrew Parry from Newton in February 2022 to provide oversight of the firm’s 14 investment teams. The firm also established a Sustainable Investments team at the beginning of 2022, led by Tom Matthews and Nikolaj Babic. Parry and the Sustainable Investments team are working to improve and define J O Hambro’s approach to ESG. The firm produces an annual stewardship report which includes several engagement and voting case studies.
The fund has an annual ongoing charge of 0.67%. There is also a performance fee if the fund outperforms the FTSE All Share index, of 15% of the surplus performance. Further details can be found in the Key Investor Information Document. Investors should note that charges are taken from capital which can increase the yield but reduces the potential for capital growth. The HL platform fee of up to 0.45% a year also applies.
Since the fund launched in 2004, its outperformed both the FTSE All Share index and the IA UK Equity Income sector average*. The fund’s value approach and bias to small and medium-sized companies can result in volatile performance though, which has been demonstrated in recent years.
Over the last 12 months, the fund has delivered a return of -2.60%, lagging behind the FTSE All Share index return of 1.01%. Our analysis suggests that over this period, the fund’s investments in housing developer Vistry Group, and entertainment company ITV have been the biggest detractors from returns. ITV’s shares have suffered recently as investors worry about the businesses level of spend on new content and the outlook for advertising budgets should we enter a recession. However, some of the fund’s investments have performed well and contributed to performance. Our analysis suggests that oil & gas producer BP was the best performer over the year. After a strong period, the managers think the business is well positioned to continue growing the dividend it pays to investors in the years to come. Past performance isn’t a guide to future performance.
We continue to expect the fund to outperform a rising market, but don’t think it’s likely to offer significant shelter in a downmarket. Although we think this fund uses a solid process that could do well over the long run, we currently prefer other UK Equity Income funds and feature these on the Wealth Shortlist. All investments fall as well as rise in value, so investors could get back less than they invest.
At the time of writing, the fund yields 5.26%. Income isn’t guaranteed, and yields aren’t a reliable indicator of future income.
|Annual percentage growth|
| Aug 17 -
| Aug 18 -
| Aug 19 -
| Aug 20 -
| Aug 21 -
|J O Hambro UK Equity Income||6.74%||-10.78%||-20.17%||51.52%||-2.60%|
|FTSE All Share||4.68%||0.44%||-12.65%||26.95%||1.01%|
|IA UK Equity Income||4.13%||-3.99%||-12.43%||31.42%||-2.81%|
Past performance isn't a guide to the future. Source: *Lipper IM to 31/08/2022.
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