- 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 invests in the shares of unloved companies the managers consider to be incorrectly priced
- The fund has material weightings in medium-sized and smaller companies which increases risk
- The fund doesn’t feature on our 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 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 incorrectly priced. This approach means the fund can go through periods of underperformance while these companies remain out of favour. 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 they think have the potential to 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, with around 50% of the fund invested in medium-sized and higher-risk smaller 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 continue to feel that the shares of UK companies offer attractive value to investors. The fund has the largest sector overweights to life insurance and construction and materials companies, whereas it doesn’t invest in areas of the market like Pharmaceuticals and beverages. In recent months, the fund’s managers have reduced the fund’s positions in bank Standard Chartered and transport business First Group following good share price performance. Though they’ve added to existing investments like mining company Kenmare and retailer Marks & Spencer’s.
JO Hambro Capital Management (JOHCM) 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 is 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.
At company level, JO 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 individual investment approaches. This means that the quality of ESG integration across JO Hambro funds differs from fund to fund, although cluster bombs are excluded across the firm.
JO Hambro recruited sustainability expert Andrew Parry from Newton in February 2022 to provide oversight of the firm’s 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 JO 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 0.69%. 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 November 2004, it’s outperformed both the FTSE All Share index and the IA UK Equity Income sector average*. Whilst it has delivered for patient long-term investors, the fund’s value approach and bias to small and medium sized companies can result in volatile performance.
Over the last 12 months, the fund has delivered a return of 5.25%, lagging the 6.09% return delivered by the FTSE All Share index, but ahead of the IA UK Equity Income sector average return of 2.87%. Past performance isn’t a guide to the future.
Our analysis indicates that stock selection hasn’t added value over this timeframe. But a focus on unloved companies means the fund can see periods where these out-of-favour businesses remain that way for some time, but this style has paid off for this fund over longer periods.
At the time of writing, the fund yields 5.78%. Income isn’t guaranteed, and yields aren’t a reliable indicator of future income.
|Annual percentage growth|
| Jul 18 -
| Jul 19 -
| Jul 20 -
| Jul 21 -
| Jul 22 -
|JO Hambro UK Equity Income||-9.36%||-25.22%||50.18%||2.01%||5.25%|
|FTSE All Share||1.27%||-17.76%||26.64%||5.51%||6.09%|
|IA UK Equity Income||-2.05%||-17.22%||30.68%||2.49%||2.87%|
Past performance isn't a guide to the future. Source: *Lipper IM to 31/07/2023.
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