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A concentrated global equity fund that draws on the team's philosophy of investing in companies with sustainably strong cashflows and growth characteristics. The manager sees the permanent impairment of capital as the key risk to investors and in this sense, he runs the fund with an absolute mindset, rather than a benchmark-relative mindset. Within its sector, the fund features in our 'Larger-Cap, Total Return Mindset' category.
The fund's KIID Synthetic Risk and Reward Indicator (SRRI) is 5. This is a regulatory measurement that is, where possible, calculated from the volatility of its weekly performance over a five-year period. A score of 5 means the fund's historic volatility is between 10% and 15%.
Our analysis indicates that the fund’s five-year standard deviation is towards the lower end of 10-15% range. The fund’s unconstrained, concentrated nature, which often results in large dispersions from the benchmark at the regional level, may lead to a differentiated performance profile. However, we would also expect the risk-aware, valuation-conscious and cashflow-driven nature of the approach to lead to a less volatile outcome than global indices over the longer term. Different share classes could have differing SRRI scores.
Ben Leyland joined JOHCM in 2006 and has managed this fund since launch. He is supported by fund manager, Robert Lancastle, who joined JOHCM in 2012. Jasmeet Munday was added to the team in August 2016 to support the stock research process.
The team believes that companies with sustainably strong cashflows, and the willingness to invest this cash to underpin future growth, have a long-term value that is typically under-appreciated by the market. They undertake fundamental business analysis to identify the most attractively valued of these structural growth companies.
In addition to an unrelenting focus on the downside risk to the price and multiple of their holdings, they are mindful of factor risks in the fund and will often seek to diversify the end customer characteristics of their holdings. The portfolio is concentrated, with 25-40 holdings, and unconstrained by the benchmark composition. Cash may be used strategically but will not exceed 20% of the fund.
The team implements the philosophy primarily through company and industry research, which often leads to theme-driven idea generation. The importance of their macro-economic research to portfolio construction is limited, but they do monitor the progress of credit cycles and avoid areas of excessive leverage (structural or cyclical).
In searching for companies with significant long-term growth potential, they seek to identify those with high, reliable cashflows and the willingness and ability to invest this cash for future growth. Initially, they screen for companies with high historical returns on capital and cash conversion metrics. These companies typically benefit from the power of their intangible assets, for example, research and development investment or brand strength, rather than capital-intensive or economically-sensitive advantages. This results in biases within the portfolio, notably an absence of the most cyclical companies with weaker balance sheets. The idea generation process draws on their expertise in analysing characteristics that consistently support companies' progress over the long term. These include distribution as a barrier to entry and the resilience and value of installed bases. They are sensitive to the price of even high quality companies and their valuation analysis is undertaken in the context of expected growth potential. They mostly assess value in absolute terms rather than relative to the market but will not compromise significantly on quality requirements when the market appears expensive, with cash likely to rise in such circumstances.
Formal documentation, including the fund prospectus and the KIID, should be sought directly from the asset manager. For ease of reference, a link to the ASSET MANAGER WEBSITE can be found above, as well as a link to the ASSET MANAGER FACTSHEET.
At The Adviser Centre, our primary aim is to support financial professionals in their fund selection and suitability work through independently-minded research, borne of decades of industry experience. Our process is framed by the fundamental concepts of “quality”, “value” and “utility”, through which we answer the key questions of why to invest in a fund, how it is likely to behave and how it can be deployed.
The Adviser Centre team members are some of the most experienced in the fund research industry. We can always look forward to robust and constructive discussions and we have great respect for their views and perspectives, which, given the breadth of their fund and market knowledge, come from an extremely well-informed position.
We have known and worked with the team for several years and we value their experience and the insights they provide to our own investment process. The service differentiates itself by its more focused nature and the information on their factsheets is useful in emphasising a fund’s key mandate, exposure and style biases, helping to explain the risk/return journey that our customers can expect.
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