A value-biased UK equity fund. The team focuses on business transformation opportunities that are underappreciated by the market, seeking discounted valuations combined with identifiable strategic improvements. Within its sector, the fund features in our ‘Value-Biased’ 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%.
The managers were appointed in March 2024, but the long-term risk/return pattern is a fair reflection of our expectation for the future. The fund’s five-year standard deviation is slightly higher than that of mainstream UK equity index. This is to be expected given the team’s focus on change and out-of-favour situations, although their attention to absolute risk and diversification helps mitigate some of the inherent risks of the approach. Different share classes could have differing SRRI scores.
The fund is managed by senior fund manager, Vishal Bhatia, and fund manager, Tom Matthews. They work closely with senior manager, and co-manager of the fund, Mark Costar, who manages the firm’s UK Growth strategy. They are supported by investment analyst, Utkarsh Katyaayun. Mr Bhatia joined JOHCM in 2007, having previously worked at Merrill Lynch as an investment analyst. Mr Matthews joined JOHCM in 2013. He was a senior manager on the Sustainable Investments team, having co-founded the team at the beginning of 2022. In addition, he was a senior analyst on the JOHCM UK Dynamic fund for eight years with specific responsibility for designing an integrated approach to ESG and sustainability.
The team believes that corporate change is frequently ignored or underappreciated by the market. Through a disciplined and thoughtful stock selection process, the team seeks to deliver attractive long-term performance by investing patiently in companies where ongoing corporate change creates an asymmetric risk /reward profile.
The fund is concentrated, with the number of holdings ranging between 35 and 50. The investment universe is the FTSE All Share index and the FTSE AIM index (above £250m market cap) and positions are taken across the market-cap spectrum. Absolute stock weightings are a function of conviction and market cap and typically range between 1%-6%. Close attention is paid to absolute risk, and the team works closely with JOHCM’s Investment Risk, Sustainable Investments and Compliance teams.
The managers look for restructuring, recovery and hidden growth situations that are often created by prolonged underperformance, which results in a company’s share price deviating from the true value of the business assets or long-term cashflows. In all cases, companies of interest display an element of self-help.
The stock universe is filtered by size and prospective dividend yield. The team is interested in those companies where there is scope for material undervaluation and therefore, they focus on shares that might suffer an element of investor uncertainty over future outcomes. More specifically, they seek to identify not only undervalued companies, but also those where there is a clear commitment to improving the financial outcome through either management or strategic change. Further, they are only interested in those companies that have a history (future capability) of generating attractive financial returns. Company meetings are a key part of the process. The team look to understand the overall strategy of the company board as well as management attitudes towards and commitment to shareholder value creation. Corporate managers are expected to show rational thought but also to exhibit an ‘activist mentality’, being unafraid to challenge the status quo and drive through positive strategic change.
In constructing the fund, the team emphasises those businesses considered to offer the best transformation opportunities. They aim to blend the margin of safety of pessimistic forecasts and discounted valuations with the additional certainty of strategic change, where rational management decisions focused on incremental improvements in the returns of invested capital can be expected with reasonable certainty, an approach the team calls “Recurring Equity Value”.
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.
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