JOHCM Global & International Equities
Global stock markets were flat over the year, as measured by the MSCI All Countries World index in US dollar terms, although experienced very mixed fortunes over the first half of the financial year. It was a torrid final quarter of 2018 for equities amid trade tensions and concerns that rising US interest rates would end the long bull market and choke US economic growth, with stock markets selling off sharply in October and December. Equity markets then rebounded sharply in the opening quarter of 2019, helped by the US Federal Reserve halting its program of interest rate rises. Trade conflict between the US and China was a constant theme over the year, with risk appetite fluctuating with the progress and setbacks in trade talks between the two economic superpowers.
Our Global Select, International Select (Global ex US) and Global Sharia strategies, managed by our Singapore-based Global Select team, collectively represent the largest JOHCM strategies by assets under management. Within these high alpha, benchmark-unconstrained strategies, the team remains focused on finding interesting idiosyncratic stocks i.e. with relatively low correlations to sectors or countries. These stocks are relatively less affected by the highly correlated passive and macro-driven global investment flows that dominate today’s global investment environment.
The smaller Global Select strategy outperformed over the period, helped by good stock selection in healthcare, financials and materials, which offset weakness in the portfolio’s communication services and energy sectors. We reopened the Global Select strategy to new investors during the year. This re-opening allows new investors access to a differentiated global equities product with an excellent track record since launch and which has long integrated ESG considerations in order to enhance performance and reduce risk.
The larger International Select strategy, which has a significant US client base in both the wholesale and institutional channels, lagged the MSCI EAFE index, having outpaced its benchmark until underperforming in September’s pronounced rotation away from growth and momentum stocks and into value names. The team believe it is too early to discern whether this rotation marks a change in market leadership but remain alert to a potentially new market regime after a multi-year period of underperformance by value stocks. The strategy enjoyed net inflows of £572 million over the year.
Among the top performing stocks in the International Select portfolio was Japanese biopharmaceutical company Peptidream. Held within the portfolio since April 2017, it is changing how drugs are developed and delivered. It is also a good example of the structural winners favoured by the team, typically industry disruptors, compound growth or early stage growth stocks.
‘Heads we win, tails, we don’t lose too much’ is the mantra of the Global Opportunities team. The strategy aims to construct a portfolio capable of surviving in all environments and able to thrive in many, demonstrating solid downside protection credentials in particular.
The strategy fared well over the 12 months, with relative outperformance driven in part by sector allocation effects, namely being overweight the strong-performing consumer staples and utilities sectors and heavily underweight financials. The relatively high cash position in the portfolio also added value. Rather than being a market call, this high cash position is an output of the team’s absolute valuation commitment and a belief that equity valuations generally provide far greater downside risk than upside potential at current levels after years of extreme monetary policy.
Stock selection was also positive, with strength in the portfolio’s consumer discretionary, utilities and healthcare names overcoming weakness in the portfolio’s consumer staples and information technology positions. Italian utilities stock Enel was a particularly strong performer. The strategy enjoyed net inflows of £305 million over the year and remains a priority product in 2019/20. Having now reached its three-year anniversary, the International Opportunities strategy, targeted at US-based prospects, will increasingly become a marketing priority.
The International Small Cap strategy underperformed over the year as liquidity and investor participation trends continued to concentrate toward larger market cap equities (greater than US$5 billion) where the portfolio does not participate. Sector allocation effects provided a headwind with the zero weighting in real estate hurting returns. The portfolio also suffered as a result of weakness in its industrials names.
We changed the mutual fund’s investment guidelines over the period. We expanded the market cap range maximum to US$5 billion, from US$2 billion, and removed the condition that the fund must initiate the sale of securities whose market capitalisation grows to exceed US$5 billion. The expanded market cap range will broaden the liquid opportunity set of investment ideas and allow for improved marketplace recognition of our investments, as there is better relative market participation.
MSCI World ex AU Total Return Index (net dividends reinvested, in AUD)
Fund Fact Sheets
|Fund Name||Fund Fact Sheet|
|JOHCM Global Select Fund||View the latest fact sheet|
|JOHCM Global Equity Fund||View the latest fact sheet|
|JOHCM International Select Fund||View the latest fact sheet|
|JOHCM International Opportunities Fund||View the latest fact sheet|
|JOHCM Global Opportunities Fund||View the latest fact sheet|
|JOHCM International Small Cap Fund||View the latest fact sheet|