Janus Henderson UK Responsible Income: April 2022 fund update

• Andrew Jones is supported by an experienced and collegiate team of fund managers and analysts
• He invests in companies with proven business models and good management teams generating sustainable profits and cash flows
• The fund doesn’t invest in industries some may find unethical, such as tobacco and gambling
• The fund is on the Wealth Shortlist of funds chosen by our analysts for their long-term performance potential

How it fits in a portfolio

The Janus Henderson UK Responsible Income fund aims to provide a good level of income alongside capital growth over the long term. It’s different to most other funds in the IA UK Equity Income sector as it specifically avoids companies some may find unethical. Some of these areas, such as tobacco and oil & gas companies, feature heavily in traditional equity income funds because of their relatively high dividends. This fund could therefore offer some diversification to a traditional equity income portfolio, or be a good addition to a responsible portfolio aiming to provide income.

Manager

Andrew Jones has managed this fund since January 2012, and has more than two decades of experience managing UK equity income funds. He started his career at GT Management in 1995, where he worked with highly-regarded investor Nick Train. He managed his first fund from 1999, shortly after GT Management was acquired by Invesco. He left Invesco in 2005 and joined Gartmore, which was acquired by Henderson in 2011.

Alongside managing the UK Responsible Income fund, Jones is co-manager of the Janus Henderson Global Equity Income and Global Responsible Managed funds. We think this is a reasonable workload, and there is some natural overlap between these funds.

Jones is supported by the wider Janus Henderson Global Equity Income team, which is a treasure trove of experience. Three members of the team – Job Curtis, James Henderson and Alex Crooke – have more than three decades of investment experience individually. Janus Henderson’s collaborative and friendly culture means Jones can make the most of the experience around him.

He also has access to a bank of 35 analysts, many of whom cover UK companies. Overall, we think Jones has the resources required to do his job well.

Process

The fund mainly focuses on dividend-paying companies in the UK. The investment process starts with a screen which excludes companies involved in areas some investors consider unethical, such as alcohol, armaments, gambling, non-medical animal testing, nuclear power, tobacco and fossil fuel power generation (although companies generating power from natural gas may be allowed if the company's strategy includes a clear plan to transition to renewable energy power generation).

All investments must also be compliant with the UN Global Compact (a United Nations pact on human rights, labour, the environment and anti-corruption). The screening process is monitored and checked by Janus Henderson’s Ethical Oversight Committee and appointed third party Vigeo Eiris, one of the largest environmental, social and governance (ESG) research companies globally, so we’re confident there’s sufficient oversight.

From the remaining universe, Jones looks for companies with proven and understandable business models, high-quality management teams and strong positions in their industries. He thinks about how the company defends its position through competitive advantages like brand strength and intellectual property, and whether those advantages can endure over time. He also likes companies in a strong financial position with plenty of cash flow, allowing them to reinvest for future growth, while at the same time rewarding shareholders with rising dividends.

Finally, he considers the company’s valuation, applying a range of valuation techniques that are relevant to the company and the industry it operates in.

Like all funds in the IA UK Equity Income sector, this one can invest up to 20% of its assets outside of the UK. The manager uses overseas exposure to access areas that aren’t available in the UK, or to add diversification during times of uncertainty, such as the 2016 Brexit referendum and the onset of the Covid-19 crisis early in 2020. He’s recently reduced the fund’s overseas investments to around 14% because he believes there are an increasing number of interesting opportunities on home soil.

The fund’s also diversified across a range of industries, although Jones tends to find most opportunities in the financials, consumer services and healthcare industries. The focus is on large and medium-sized companies, although the manager does have the flexibility to invest in higher-risk smaller companies too.

Recent investments include global education company Pearson. The company’s struggled in recent years because of a focus on expensive textbooks which faced slowing demand as consumers turned to cheaper digital alternatives. But Jones rates the new management team’s plans to digitise the company’s market-leading content, which should allow them to defend and, over time, grow their market share. He also thinks the company’s in a good financial position.

Culture

Janus Henderson is a large investment firm with offices all over the world. It was formed in 2017 from the merger of two long-established groups – US-based Janus Capital Group and Henderson Global Investors.

It values experience, and fund managers at the group have on average over two decades of investment experience. Sharing knowledge and ideas between investment teams is an important part of the culture. Managers have the flexibility to tap into the wider group’s resources for ideas and insights, but also have the freedom to do their own research and form their own views without having a ‘house view’ placed on them.

ESG integration

Janus Henderson aims to be a responsible steward of investors’ money, and ESG is an important part of this. All fund managers have access to ESG scoring models and customised ESG research, but the firm believes ESG considerations should go beyond examining numbers. Company site visits, speaking to workers and questioning company management are just some of the ways fund managers are expected to assess a company’s ESG credentials.

Investment teams across Janus Henderson engage with the companies they invest in and the firm’s Governance and Responsible Investing team provides centralised support on voting, engagement and ESG research.

When it comes to voting at company meetings, Janus Henderson has a Proxy Voting Committee, which is responsible for establishing the firm’s position on major voting issues and creating guidelines overseeing the voting process. The firm’s full proxy voting history is published annually. There is more detail on voting and engagement, including case studies, in the firm’s annual ESG Company Engagement & Voting Review report.

Within this fund, Jones integrates ESG and considers whether companies are doing the right thing. He believes ESG analysis helps to highlight businesses that use more sustainable practices and could thrive over the long term. This could drive long-term dividends and uncover risks that are less obvious through more traditional company analysis. The team’s Sustainability Analyst, Amarachi Seery, monitors the fund and provides robust challenge on any ESG issues that crop up over time. Where ESG risks are identified, Jones and his team often engage with the company to help drive improvement.

The manager recently engaged with three water utility companies held by the fund after the Environment Agency launched an investigation into all the water and wastewater companies in England and Wales to assess if any were breaking the rules of their environmental permits. The engagement covered how the companies manage environmental risks and their approach to the investigation.

Cost

The fund’s annual ongoing charge is 0.85%. This is a little higher than other equity income funds on the Wealth Shortlist and investors should be mindful this sets a higher hurdle for the manager to deliver positive returns. The HL platform fee of up to 0.45% per year also applies.

Please note the fund takes charges from capital, which could boost the income, but reduces the potential for capital growth.

Performance

The fund’s performed well over the long term. Since Jones took control in January 2012 it’s risen 156.72%*, compared with 111.73% for the broader UK stock market. Our analysis suggests his ability to select companies with outstanding prospects, regardless of their size or the sector they’re in, boosted returns, although past performance is no guide to the future.

The fund’s exclusions mean we expect it to perform differently to the broader UK stock market, and its peers in the IA UK Equity Income sector, and that’s been the case over the past year. A lack of exposure to oil & gas companies, which were boosted by strong commodity prices, held back performance. Some of the fund’s investments in companies the manager believed would benefit from the reopening of the economy post-Covid, such as transport operator National Express, were hindered by the emergence of the omicron variant.

Overall, Jones aims to beat the performance of the FTSE All Share over the long term and achieve a higher yield than the index by building a balanced, diversified portfolio of companies yielding between 1.5% and 6%. We think he’s done a good job of growing the income over time, particularly given the additional challenge of managing an exclusions-based fund.

At the time of writing, the fund yields 3.7%, although income is variable, not guaranteed. Yields are not a reliable indicator of future income.

Past performance is not a guide to the future. Source: *Lipper IM to 31/03/2022. Performance figures are shown with income reinvested.

Find out more about Janus Henderson UK Responsible Income including charges

Janus Henderson UK Responsible Income Key Investor Information