A concentrated portfolio, comprising primarily of large mid-cap and medium-sized large-cap stocks, has helped this Dublin-domiciled fund outperform its IMA Global sector peers since launch.
Ben Leyland, senior fund manager on the JO Hambro Capital Management Global Opportunities (JOHCM) fund, assisted by analyst Robert Landcastle, notes the aim of the fund is to generate high risk-adjusted total returns in absolute terms. He says: “We believe that the best way to achieve this is by owning a concentrated portfolio of shares in high quality, compound growth companies, which generate cash reliably through a cycle, and then reinvest some of that cash back into the business in order to generate further growth. Such stocks tend to be less volatile than average, as well as growing faster and more reliably over a five- to 10-year horizon.”
Launched in June 2012, the £7.4m fund has an investment process that focuses on understanding market structures, barriers to entry, structural growth drivers, pricing power and capital intensity.
Mr Leyland notes this has not changed since launch, adding: “The investment process is exactly the same as the successful £1.2bn JOHCM UK Opportunities fund [co-managed by Mr Leyland and John Wood], which is now eight years old. The core of the investment process is bottom up and is focused on the micro: understanding market structures and barriers to entry, and so on. But we do recognise the importance of a macro context when making investment decisions.”
Since launch, the fund has delivered a return of 32.1 per cent compared with the IMA Global sector average of 30.18 per cent. In 2013, the fund had an equally good year, outperforming its sector peers by 4.87 percentage points with a return of 26.53 per cent for the 12 months to January 1 2014.
Although the team prefers not to discuss individual stock and sector positions, the largest geographical weighting in the fund was to Europe at 32.1 per cent of the portfolio, according to the December factsheet. The majority of the portfolio is allocated to the US at 26.8 per cent, the UK with a 24.9 per cent weighting and 2.1 per cent in Japan.
Meanwhile, on a sector basis the portfolio has its largest weighting towards IT at 19 per cent, with consumer discretionary and industrials sitting at 14.4 per cent and 14.3 per cent respectively. The lowest sector weighting is materials at roughly 2 per cent of the portfolio.
Mr Leyland says: “The fund has had a strong year, in both absolute and relative terms. Particularly encouraging has been the tendency to outperform in volatile market conditions, as we saw in June and August. Most importantly, the earnings and dividends of the underlying companies in the fund have grown by mid to high single-digits, whereas they have stagnated for the market as a whole.”
The manager notes there has been little change to the portfolio in recent months, instead emphasising the focus on quality now being more relevant than ever before with absolute valuations extended and valuation dispersion in equity markets at 25-year lows.