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Citywire Wealth Manager Conference 2013 JOHCM UK Dynamic Fund 4 - 5 March 2013
Performance and risk stats since inception**
Fund return 68.00%
Benchmark return 31.19%
Relative return 28.06%
Tracking error 5.05
Information ratio 1.15
Annualised Fund return 11.86%
Annualised benchmark return 6.04%
Annualised relative return*** 5.49%
JOHCM UK Dynamic Fund
• An experienced team
• Successful first four years since launch • JOHCM UK Dynamic ranked 1st decile and
11/246 in the IMA UK All Companies sector, since inception*
• Liquid all-cap portfolio
• 60% FTSE 100, 40% non-FTSE 100
• Returns weighted to stock selection
• Augmented by pragmatic allocation
Source: JOHCM/FTSE Group/Bloomberg. *Source: Lipper Hindsight. Performance ranking based upon IMA UK All Companies Sector to 31 January 2013. **NAV of share class B in GBP, net income reinvested, as at 31 January 2013. ***Calculated on a geometric basis. All performance is shown against the FTSE All-Share TR Index. Performance of other share classes may vary and is available upon request. Inception date: 16 June 2008. Note: Performance data for the period 16 June 2008 to 22 October 2009 is for Ryder Court UK Dynamic Fund. From 23 October 2009 onwards, the Fund converted to JOHCM UK Dynamic Fund.
Opening remarks
2
Source: Style Research™ for the period 30 June 2008 to 31 January 2013. Plot points show average values based on value metrics (Book/Price, Dividend Yield, Earnings Yield, Cash Flow Yield, Sales/Price, EBITDA/Price) vs. growth metrics (ROE, Earnings Growth, Income/Sales, Sales Growth, IBES 12mth Growth and IBES 1 year reversion). *Source: Lipper Hindsight. Performance ranking based upon IMA UK All Companies Sector to 31 January 2013.
A blended strategy
• Capital growth tilt with dividend support • Recovery and unrecognised growth • Balance sheet and cash flow focus • Concentrated, high conviction positions
• 40-50 holdings
• Strict portfolio construction
Growth
Value
Name Return (%)
Since inception 3 years 1 year Value Position Quartile Decile Value Position Quartile Decile Value Position Quartile Decile
Schroder Recovery A Inc 72.98 9 1 1 44.75 53 1 2 30.14 11 1 1
JOHCM UK Dynamic Ret Acc 68.00 11 1 1 47.12 42 1 2 26.79 21 1 1
Investec UK Special Situations A GBP Acc Net 64.63 13 1 1 37.55 106 2 4 20.43 77 2 3
Artemis UK Special Situations R Acc 37.67e 56 1 3 38.78e 88 2 4 19.46e 83 2 3
Fidelity Special Situations Acc 40.53 46 1 2 35.84 135 3 6 30.63 9 1 1
M&G Recovery A Inc 29.54 94 2 4 26.61 236 4 9 7.24 272 4 10
FTSE All-Share TR 31.24 82 2 4 36.96 116 2 5 16.30 138 2 5
BlackRock UK Dynamic Inc -0.82 242 4 10 17.23 259 4 10 10.99 253 4 10
AVERAGE 42.97 35.61 20.25
Performance vs. Peer funds since inception*
JOHCM UK Dynamic snapshot
3
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
-2.5 -1.5 -0.5 0.5 1.5 2.5
UKEI
UKO
UKD
UK Dynamic philosophy
Four key tenets
• Profit from extremes
• Companies are dynamic not static
• Employ strict investment disciplines
• Build margin of safety
4
A consistent, replicable investment approach
Profit from extremes
• Returns peak • Specific internal / external issues
Looking for three distinct types of opportunity
• Returns trough • Outlook uncertain • Point of maximum
bearishness • Change required
0 Time
Share price
A
B
C B: Self help / recovery
• Strategic mistakes • Declining returns • Balance sheet security
C: Undervalued growth • Strategic mistakes • Heavy investment • Growing pains
A: Self help / restructuring • Strategic mistakes • Declining returns • Balance sheet uncertainty
5
Companies are dynamic not static • Anticipate change
• Uncertainty creates opportunity
• Engage with management teams constructively
• Benefit from management change and/or strategic shifts
• Identify affirmative positive actions • Asset recycling • Cash flow improvement measures • Growth investment
• Supply side changes
6
Employ strict investment disciplines • Cherry pick the best opportunities
• Avoid potential value traps • The most structurally challenged • Avoid micro-caps, ‘fad’ stocks and excessive leverage
• Only buy businesses with specific characteristics • Well developed brands and market position • Businesses managed for value, with improving ROIC • Strong cash generators
• Maintain strict portfolio construction disciplines • Sector, dividend and market cap controls • Employ a strict selling discipline • Proprietary risk screening model (see appendix)
7
Build margin of safety
Source: JOHCM/Bloomberg. Reflects yield of share class B accumulation units as at 31 December 2012 in each discrete year.
• The importance of cash
• Buy dividend payers only
• Looking for unrecognised sources of cash flow • Working capital • Operating and balance sheet efficiencies • Loss making divisions • Hidden revenue growth opportunities
• Supports strong portfolio dividend characteristics
Divdiend history 2009 2010 2011 2012 Retail (acc) dps 0.65 3.48 3.67 5.60 Yield 0.56% 2.56% 2.96% 3.56%
8
A portfolio of similar opportunities
High market shares Managed for change
Improving quality of earnings Increasing cash conversion
Strengthening balance sheets Paying dividends
Source: JOHCM as at 31 January 2013.
Restructuring Recovery Growth
9
0
500
1000
1500
2000
2500
3000
2008 2009 2010 2011 2012 2013e-120
-100
-80
-60
-40
-20
0
20
40
2009 2010 2011 2012 2013e
-80-70-60-50-40-30-20-10
01020
Feb 08 May 09 Aug 10 Nov 11
Gross debt
Self-help / restructuring • Structural cost drags being eliminated
• Operational / balance sheet efficiencies • Growing cash fees and income
• Transformational private equity model • Refocus on core skills and geographies • Active management and recycling
• Quality growth assets materially understated • Recent sales at premium prices
• Sustainably higher returns to shareholders
Source: *JOHCM estimates. 3i and Bloomberg as at 26 February 2013.
Jan 13
3i relative to FTSE All-Share Index
Cum
ulat
ive
geom
etric
rela
tive
pe
rfor
man
ce (%
)
Operating cost drag reducing
£m
£m
10
-60
-50
-40
-30
-20
-10
0
10
20
30
40
Feb 08 May 09 Aug 10 Nov 11
-200
-100
0
100
200
300
400
500
600
2006(a)
2007(a)
2008(a)
2009(a)
2010(a)
2011(a)
2012(a)
2013(e)
2014(e)
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
2006(a)
2007(a)
2008(a)
2009(a)
2010(a)
2011(a)
2012(a)
2013(e)
2014(e)
EV/EBITDA
• Five years of falling returns
• Shareholder pressure forces change
• Balance sheet has been revolutionised
• Returns are rapidly improving
• Multiple upside opportunities
Source: *JOHCM estimates. QinetiQ and Bloomberg as at 8 February 2013.
QinetiQ relative to FTSE All-Share Index
Cum
ulat
ive
geom
etric
rela
tive
pe
rfor
man
ce (%
)
Net debt
Self-help / recovery
EV/E
BIT
DA
mul
tiple
£m
11
Jan 13
-100
-80
-60
-40
-20
0
20
40
60
Feb 08 May 09 Aug 10 Nov 11
• Two years of restructuring nearing completion • Balance sheet, cash flow and returns all
much improved • Heavy investment in new products to drive
higher growth • Underlying markets growing between 5-20% • Forecasts and valuations are based on
c. 2% growth
Invested capital/ROIC
Source: *JOHCM estimates. Xchanging and Bloomberg as at 28 February 2013.
Xchanging relative to FTSE All-Share Index
Cum
ulat
ive
geom
etric
rela
tive
pe
rfor
man
ce (%
)
Adjusted net debt
Self-help / growth
£m
£m
12
Jan 13
-80
-60
-40
-20
0
20
40
60
2007 2008 2009 2010 2011 2012a0%
5%
10%
15%
20%
25%
30%
0
50
100
150
200
250
300
2007 2008 2009 2010 2011 2012
Invested capitalROIC
-100%
-75%
-50%
-25%
0%
25%
50%
75%
100%
JOHCM UK Dynamic Weight FTSE All-Share TR Index Weight Overweight / underweight
Current sector positioning
Maximum overweight
Maximum underweight
Source: JOHCM/FTSE/Bloomberg as at 23 January 2013. Benchmark is FTSE All-Share TR Index. Cash weight is 2.95% 13
Positive in every sector since inception Sector attribution
Average weight %* Performance %
Sector Account Benchmark Account Benchmark Allocation % Selection % Relative Performance %**
Oil & Gas 11.06 18.04 39.98 14.63 1.83 3.85 5.68
Basic Materials 3.17 11.03 -15.18 -14.89 4.44 0.31 4.75
Industrials 12.29 7.51 176.21 65.01 1.86 11.88 13.73
Consumer Goods 5.08 12.17 269.44 106.88 -4.45 6.60 2.15
Health Care 10.82 7.82 68.44 74.54 2.35 -0.26 2.10
Consumer Services 12.72 9.67 98.28 45.41 1.36 6.44 7.80
Telecommunications 6.68 6.23 78.03 49.98 1.22 2.18 3.40
Utilities 3.34 3.97 62.62 48.20 -0.37 0.75 0.38
Financials 26.31 22.08 53.33 1.33 2.50 16.90 19.40
Technology 5.63 1.49 47.20 169.59 6.52 -4.69 1.83
Cash 2.89 0.00 - - 3.65 0.00 3.65
Total 100.00 100.00 96.08 31.21 20.91 43.96 64.87
Source: JOHCM/FTSE Group/Bloomberg. Figures are at end of day and calculated on a gross basis in GBP. All performance is shown against the FTSE All-Share TR Index. Data from 16 June 2008 to 31 January 2013. *Mean weights are shown for the stated period for fund, benchmark and relative weights. **Total relative performance will not be identical to unit performance due to a timing difference in the underlying data and the impact of fees. 14
-600
-400
-200
0
200
400
600
800
1000
1200
1988 1992 1996 2000 2004 2008 2012
• The outlook for equities remains supportive
• Valuations are cheap and government policy supportive • Corporates have access to record low funding costs • Could we have seen the worst of equity outflows?
• Huge opportunities for this type of strategy
• Market trends support a disciplined bottom-up approach • Macro obsession dissipating. Risk appetites improving • Valuation anomalies remain extreme
• Current portfolio vintage
Vintage* 0-6m 6-12m 12-18m 18-24m 24m+
No. of companies 9 9 5 2 23
Percentage of total 19% 19% 10% 4% 48%
Source: JOHCM and Citigroup as at 31 December 2012. *Measured using UKdfa, an internal screening evaluation tool as at 31 January 2013.
Current thoughts
0
2
4
6
8
10
1999 2001 2003 2005 2007 2009 2011 2013
IBOXX Euro BBB - Bond YieldPan European Equities - Dividend YIeld
%
US
($)b
n
5 -Year Rolling Annual Equity Net Inflows 5 -Year Rolling Annual Bond Net Inflows
15
Summary
• Invest for the long term
• Focus clearly on change within companies
• Which improves cash flow and returns
• This provides valuation support
• And re-rating opportunities
• Ensure utmost portfolio discipline
16
Appendix
17
-70-60-50-40-30-20-10
010203040506070
Jun 08 May 09 Apr 10 Mar 11 Feb 12 Jan 13
% g
row
th
UK Dynamic Fund (£)* FTSE All-Share TR Index (£)
Source: JOHCM/FTSE/Bloomberg. NAV of share class B in GBP, net income reinvested, as at 31 January 2013. All performance is shown against the FTSE All-Share TR Index. Performance of other share classes may vary and is available upon request. Inception date: 16 June 2008. Note: performance data for the period 16 June 2008 to 22 October 2009 is for Ryder Court UK Dynamic Fund. From 23 October 2009 onwards, the Fund converted to the JOHCM UK Dynamic Fund.
JOHCM UK Dynamic Fund Performance since inception to 31 January 2013 Relative performance for share class B in GBP
+68.0%
+31.2%
18
-15.7
38.4
16.1
-8.6
26.9
6.9 11.9
-23.7
29.9
15.2
-4.4
13.0
6.4 6.0
-50
-25
0
25
50
2008 2009 2010 2011 2012 YTD 2013 SI (p.a)
% re
turn
JOHCM UK Dynamic Fund
FTSE All-Share TR Index
Performance since inception to 31 January 2013
Percentage growth, share class B in GBP Recent history relative – in GBP
JOHCM UK Dynamic Fund
Fund size: £27.5m
• 1st quartile since launch, and 1st quartile over three years¹
Source: JOHCM/FTSE/Bloomberg. NAV of share class B in GBP, net income reinvested, as at 31 January 2013. All performance is shown against the FTSE All-Share TR Index. Inception date: 16 June 2008. Performance of other share classes may vary and is available upon request. Note: performance data for the period 16 June 2008 to 22 October 2009 is for Ryder Court UK Dynamic Fund. From 23 October 2009 onwards, the Fund converted to the JOHCM UK Dynamic Fund. *Source: Lipper Hindsight, IMA UK All Companies Sector Rankings to 31 January 2013.
1 mth
3 mths
6 mths
12 mths
3 yrs
Since Inception
Fund 6.87 10.89 22.00 26.79 47.11 68.00
Benchmark 6.40 8.48 13.64 15.98 37.42 31.19
• Ranking 11/246 funds since launch (ranked 42/267 funds over 3 years)¹
19
JOHCM UK Dynamic – active bets As at 31 January 2013
Source: JOHCM/FTSE Group/Bloomberg as at 31 January 2013. Benchmark: FTSE All-Share TR Index.
Top 10 active bets Bottom 10 active bets
Sector Portfolio Weight (%)
Index Weight (%)
Active Weight (%)
3i 3.48 0.13 3.34
QinetiQ 3.19 0.07 3.12
C & C 2.13 0.00 2.13
Centrica 3.03 0.96 2.08
Micro Focus International 2.09 0.05 2.04
Smith & Nephew 2.39 0.35 2.04
David S Smith 2.14 0.11 2.03
Royal & Sun Alliance 2.28 0.25 2.03
Xchanging 1.98 0.02 1.96
Standard Life 2.24 0.43 1.81
20
Sector Portfolio Weight (%)
Index Weight (%)
Active Weight (%)
British American Tobacco 0.00 3.38 -3.38
Royal Dutch Shell 5.09 7.66 -2.57
Diageo 0.00 2.51 -2.51
Vodafone 2.01 4.50 -2.50
BHP Billiton 0.00 2.42 -2.42
BG Group 0.00 2.00 -2.00
Standard Chartered Bank 0.00 1.76 -1.76
Unilever 0.00 1.64 -1.64
SABMiller 0.00 1.56 -1.56
Reckitt Benckiser 0.00 1.44 -1.44
JOHCM UK Dynamic – contributors Since inception to 31 January 2013
Top 10 contributors Bottom 10 contributors
Source: JOHCM/FTSE Group/Bloomberg. Figures are at end of day and calculated on a gross basis in GBP. All performance is shown against the FTSE All-Share TR Index. Data from 16 June 2008 to 31 January 2013. Stocks in red were not held.
Security Relative contribution (%) Sector
Rio Tinto 3.57 Basic Materials
Hamworthy 3.09 Industrials
International Personal Finance 2.83 Financials
Kingfisher 2.53 Consumer Services
Moneysupermarket.com 2.46 Consumer Services
Legal & General 2.29 Financials
Standard Life 2.21 Financials
GlobeOp Financial 2.20 Financials
Lamprell 2.16 Oil & Gas
C & C Group 2.08 Consumer Goods
Security Relative contribution (%) Sector
Southern Cross Healthcare -2.82 Health Care
Man Group -2.15 Financials
British American Tobacco -1.82 Consumer Goods
Diageo -1.73 Consumer Goods
SABMiller -1.73 Consumer Goods
Carrefour -1.48 Consumer Services
Severfield-Rowen -1.11 Industrials
Nokia -1.02 Technology
CPP -0.94 Industrials
ARM -0.86 Technology
21
Risk management – ‘UKdfa’ – internal screening tool •Management •Earnings visibility
•Operational leverage
•Cash generation
•Competition •Market share •Long-term dynamics
•Div yield •Div cover •Earnings momentum
• (P/BV)/(ROE/COE)
•Adjusted PEG
•Credit default swap spread
•Credit rating outlook
•Net debt to EBITDA
•% buy •% sell •% hold
•Gross liabilities to market cap
•Sub £1bn •Over £5bn
•DDM •EV/EBITDA •2 stage P/E •Analyst forecasts
•DCF
Operating risk Rating risk Balance sheet risk
Contrarian risk Pension risk Size risk Upside
20% 10% 7.5% 7.5% 5% 35% 15%
Weighted rating
22
UK Dynamic team – biographies Alex Savvides Senior Fund Manager 16 years industry experience, joined JOHCM in March 2003 Alex Savvides is Senior Fund Manager of the JOHCM UK Dynamic Fund and works alongside Mark Costar, Senior Fund Manager of the JOHCM UK Growth Fund. Prior to joining JOHCM, Alex spent seven years in sales, trading and research roles focusing on UK companies at various broking firms. Alex is a fellow of the Securities Institute and has a Securities Institute Diploma. He holds a BA (Hons) in Politics from the University of Nottingham.
Mark Costar Senior Fund Manager 20 years industry experience, joined JOHCM in August 2001 Mark Costar is Senior Fund Manager of the JOHCM UK Growth Fund. Prior to joining JOHCM, Mark spent nine years at Clerical Medical Investment Group, where he was responsible for managing approximately £2 billion. He managed the Clerical Medical UK Growth Fund from July 1996. Mark holds a BSc (Hons) in Industrial Economics from the University of Warwick.
Vishal Bhatia, CFA Fund Manager 8 years industry experience, joined JOHCM in August 2007 Vishal Bhatia is Fund Manager, assisting Mark Costar and Alex Savvides. Prior to joining JOHCM, Vishal worked at Merrill Lynch as a European telecommunications equipment analyst. Vishal is a CFA charterholder and holds a BSc in Accounting and Finance from the London School of Economics and Political Science.
Source & copyright: Citywire. Alex Savvides is A rated by Citywire for his three year risk-adjusted performance for the period 31 January 2010 to 31 January 2013. 23
James Lowen Senior Fund Manager, long only JOHCM UK Equity Income 19 years experience
Clive Beagles Senior Fund Manager, long only JOHCM UK Equity Income 24 years experience
Rachel Reutter UK Analyst, long only JOHCM UK Opportunities 6 years experience
Ben Leyland Fund Manager, long only JOHCM UK Opportunities 11 years experience
John Wood Senior Fund Manager, long only JOHCM UK Opportunities 23 years experience
Vishal Bhatia Fund Manager, long only JOHCM UK Growth JOHCM UK Dynamic 8 years experience
Alex Savvides Senior Fund Manager, long only JOHCM UK Dynamic JOHCM UK Growth 16 years experience
Mark Costar Senior Fund Manager, long only JOHCM UK Growth 20 years experience
Investment professionals contributing to idea generation within UK equity
24
Regulatory information This document is for professional investors only. J O Hambro Capital Management Limited . Registered in England No:2176004. Authorised & regulated by the Financial Services Authority. Registered office: Ground Floor, Ryder Court, 14 Ryder Street, London SW1Y 6QB. The registered mark J O Hambro® is owned by Wiltons Holdings Limited and is used under licence. JOHCM® is a registered trademark of J O Hambro Capital Management Limited The information in this document does not constitute, or form part of, any offer to sell or issue, or any solicitation of an offer to purchase or subscribe for Funds described in this document; nor shall this document, or any part of it, or the fact of its distribution form the basis of, or be relied on, in connection with any contract. Recipients of this document who intend to subscribe to any of the Funds are reminded that any such purchase may only be made solely on the basis of the information contained in the final prospectus, which may be different from the information contained in this document. No reliance may be placed for any purpose whatsoever on the information contained in this document or on the completeness, accuracy or fairness thereof. No representation or warranty, express or implied, is made or given by or on behalf of the Firm or its partners or any other person as to the accuracy, completeness or fairness of the information or opinions contained in this document, and no responsibility or liability is accepted for any such information or opinions (but so that nothing in this paragraph shall exclude liability for any representation or warranty made fraudulently). The distribution of this document in certain jurisdictions may be restricted by law; therefore, persons into whose possession this document comes should inform themselves about and observe any such restrictions. Any such distribution could result in a violation of the law of such jurisdictions. The information contained in this presentation has been verified by the firm. It is possible that, from time to time, the fund manager may choose to vary self imposed guidelines contained in this presentation in which case some statements may no longer remain valid. We recommend that prospective investors request confirmation of such changes prior to investment. Notwithstanding, all investment restrictions contained in specific fund documentation such as prospectuses, supplements or placement memoranda or addenda thereto may be relied upon. Investments fluctuate in value and may fall as well as rise and that investors may not get back the value of their original investment. Past performance is not necessarily a guide to future performance. Investors should note that there may be no recognised market for investments selected by the Investment Manager and it may, therefore, be difficult to deal in the investments or to obtain reliable information about their value or the extent of the risks to which they are exposed. The Investment Manager may undertake investments on behalf of the Fund in countries other than the investors’ own domicile. Investors should also note that changes in rates of exchange may cause the value of investments to go up or down. Sources for all data: JOHCM/Bloomberg/Lipper/FTSE Group (unless otherwise stated). Industry Classification Benchmark (“ICB”) is a product of FTSE International Limited (“FTSE”) and all intellectual property rights in and to ICB vest in FTSE. J O Hambro Capital Management Limited has been licensed by FTSE to use ICB. “FTSE” is a trade mark of London Stock Exchange and The Financial Times Limited and is used by FTSE under license. FTSE and its licensors do not accept any liability to any person for any loss or damage arising out of any error or omission in ICB. The Citywire Selection is a multi-asset guide with up to 150 key investment ideas devised by Citywire. Source: Citywire 2012. Citywire’s Fund Manager Ratings identify the individual managers who have the best risk-adjusted personal performance track records over three years and highlights the funds they are currently managing. The Citywire Manager Ratings are based on what is referred to as the Citywire Manager Ratio (equivalent of the Information Ratio). This takes into account career moves, career breaks and switches in funds managed. The figure reflects how much 'added value' in terms of outperformance against the benchmark the fund manager delivers for each unit of risk assumed (where risk is defined as not mirroring the index's return). Source & copyright: CITYWIRE. Alex Savvides is A rated by Citywire for his three year risk-adjusted performance for the period 31 January 2010 to 31 January 2013. 5541
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