JOHCMUKEquityIncomeFundPlusça change

CliveBeaglesSeniorFundManager

JOHambroCapitalManagement– AnnualUKInvestorDay2018

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Agenda

• What has changed in markets over the last few years?

• Current opportunities in UK equities

• Fund positions and valuation

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Significant changes in the last few years

• Growth of ETFs/low cost index products and machine learning

• Role of stockbrokers

• Our interaction with companies

• Stakeholder responsibilities and governance

• Rising activism

• Reduced ability to predict 1 day share price movements based on news releases

• Lower fund turnover

Structural or cyclical?

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What has not changed?

• It is still intellectually challenging and great fun (even with less lunches!)

• There are still lots of mis-priced stocks, across the whole market capitalisation

spectrum

• Investing styles will still move in and out of favour

• Contrarian/value investing can sometimes feel like a minority sport

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Implications for portfolio management

• Mr Market’s subliminal messaging may be less powerful in highlighting turning

points

• Stick to your convictions, but remain pragmatic and flexible

• You may need to be even more patient (as others become more impatient)

• Behavioural finance elements offer more added value opportunities than endless

number crunching

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Current market trends

• The equity bull market is likely to be increasingly challenged by QT

• Momentum style investing currently dominating

• The debate on UK equities is very narrowly focused on Brexit/currency

• Consequently, parts of the market still offer very good absolute as well as

relative value, but possibly need Brexit clarity to perform strongly

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Where is the value?

Source: JOHCM as at 30 June 2018. Benchmark: FTSE All-Share TR Index (12pm adjusted).

• UK Domestics

• Financials (c.36% of Fund, c.10% overweight)

• Commodity / oil sectors (c.28% of Fund, c.8% overweight)

• Highest small cap weighting since Fund’s inception (c.19-20% of Fund)

vs. c.25% underweight bond proxies (consumer staples, utilities, pharma)

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UK domestics – valuations are attractive

Source: 1Credit Suisse as at 2 July 2018. 2Exane as at 10 September 2018.

0.65

0.75

0.85

0.95

1.05

1.15

1.25

1.35

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

UK PB relative to Global

UK ex resources PB relative to Global

Valuation opportunity = gradual increase in domestic exposure

UK domestics relative to overseas earners (price to book)2UK price to book vs. Global1

0.7

0.8

0.9

1.0

1.1

1.2

1.3

1.4

Jun 14 Jan 15 Aug 15 Mar 16 Oct 16 Jun 17 Jan 18 Aug 18

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UK domestics – overview of positioning

Source: JOHCM as at 30 June 2018.

• Construction / building sector (c. 9% of Fund) - govt housing policy, regeneration, infrastructure spend

• Financials UK banks (c. 10% of Fund) – rising rates, legacy issues dropping away, excess capital, valuation

• The rest – media, retail, travel, leisure (c. 15% of Fund, of which c. 10-11% is UK specific) – most challenged area, careful stock selection

Main pillars of exposure are:

0.7

1.2

1.7

2.2

2.7

1981 1985 1989 1993 1997 2001 2005 2009 2013 2017

Europe mining, capex / depreciation

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Mining – less capex, robust demand

Source: *Credit Suisse as at 5 July 2017. **Bernstein as at 10 July 2017.

Capex-to-depreciation* 10-year average supply and demand growth in copper**

0%

1%

2%

3%

4%

5%

6%

7%

2030e2023e201620092002199519881981197419671960

Refined Demand Mined Supply

• Capex-to-depreciation has fallen to 30-year-lows likely to see potential supply shortfalls in the future

• Demand trends remain steady in China, assisted by policy easing

• With the companies having de-levered, most of the free cash flow will be returned as dividends

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Small cap – still lots of opportunities

• New car volumes fell sharply in year to March 2018 (mainly due to diesel uncertainty) but have started to stabilise

• More than 65% of profits are driven by used car sales and servicing i.e. this is not just driven by new car volumes

• Car manufacturers encouraging consolidation – acquisition multiples are low

• Strong balance sheet – property backed / net cash in c. 12-18 months

• PE of 7x, yield of 4%

Source: JOHCM as at 30 June 2018.The information contained herein including any expression of opinion is for information purposes only and is given on the understanding that it is not a recommendation.

Lookers

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Low leverage – still underpriced

• Many companies are STILL scarred by the credit crisis and geo-politics and have persisted with very conservative capital structures

› Valuation gap between “defensives” like staples, utilities and tobacco vs. the rest of the market is wider when balance sheet adjusted

› Low leverage gives optionality – grow dividends, invest organically, special distributions, bolt on M&A

• High leverage starting to impact returns – Capita, Inmarsat, AA Group, Provident Financial, Talktalk, Interserve, Carillion, Conviviality (none owned by Fund)

› Fund has only 5 (non-bank / insurance / property stocks) with net debt/EBITDA > 2

› Leverage more difficult to measure in bank / insurance sector – all our holdings in these sectors have excess capital and are returning to shareholders (e.g. HSBC, Aviva) or adequate capital (e.g. Barclays)

0

1

2

3

Nov 04 Apr 06 Aug 07 Jan 09 May 10 Oct 11 Feb 13 Jul 14 Nov 15 Mar 17 Aug 18

Pri

ce/B

ook

Rat

io

Benchmark Portfolio

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Portfolio value characteristics

Source: Style Research as at 31 August 2018. Inception date: 30 November 2004. All performance is shown against the FTSE All-Share TR Index (12pm adjusted). The yield is historical and therefore not guaranteed. *Source: JOHCM as at 31 August 2018 based on share class A accumulation).

August 2018; underweight to benchmark

(max -0.54)January 2009; Underweight to

benchmark (diff -0.55)

UK Equity Income Price/Book History vs. FTSE All Share

• Fund yields c. 4.9% (prospective for September 2019*), c. 3x more than 10 year government bonds• Fund has delivered 10-11% pa compound annual dividend growth since inception• c. 50% of Fund is on a PE of c.9-10x, the majority of the rest is on c. 11-13x

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Fund’s dividend growth*

Fund dividend profile

Source: JOHCM. *As at 31 August 2018 based on ‘A’ accumulation share class . **Based on 14 years to December 2018 (forecast). The dividend yield is not guaranteed.

• 2018 initial view – mid-single-digit growth, upgraded at the end of Q1 to 5-7% growth, upgraded at end of Q2 to 9-10% growth; and at the end of Q3 to 12-13%

• 2019 ‘initial look’ positive for dividend growth on a constant currency basis

• Special dividends which are clearly capital in nature are NOT credited to income / Fund dividend. No distortion, impacting the growth potential in Fund dividend

• Fund yields 4.9%* prospectively (September 2019)

2012 2013 2014 2015 2016 2017 2018

+10.3%(actual)

+9.1%(actual)

+14.1%(actual)

+8.7%(actual)

+8.6%(actual)

+13.4%(actual)

+12-13% (forecast)

Compound annual growth of Fund dividend since inception = c.10 - 11% p.a.**

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Three broad buckets of stocks with different characteristics

Can we continue to deliver c.10% p.a. dividend growth?

Source: JOHCM estimates. Dividend growth track record is based on 14 years to December 2018 (forecast).

High yield/low dividend growth (0-5%)

Approx. 35% of portfolio

Reasonable yield/medium dividend growth (5-7%)

Approx. 40% of portfolio

Approx. 25% of portfolio

Reasonable yield/strong dividend growth (10%+)

Underlying dividend growth c. 6-8% assisted by cross market cap structure of Fund

Fund dividend growth vs. peers – very strong record

Source: JOHCM/Lipper as at 31 December 2017. 16

0

50

100

150

200

250

300

350

Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12 Dec 13 Dec 14 Dec 15 Dec 16 Dec 17

JOHCM UK Equity Income A Acc Invesco Perpetual Income & Growth Acc Artemis Income R Acc

Newton UK Income Inst GBP Acc Schroder Income A Acc

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Conclusion - plus ça change

• Regulatory and technology changes have clearly impacted market dynamics

• However, some of the impacts are more cyclical in nature

• The growth of ETFs/passive potentially presents a great opportunity to outperform

• Our unloved basket of stocks generated c.4.9% yield for September 2019*, with healthy

dividend growth

Source: JOHCM. *As at 31 August 2018 based on ‘A’ accumulation share class.

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Sources for all data: JOHCM/Bloomberg/Lipper/FTSE International (unless otherwise stated).

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The information contained in this presentation has been verified by the firm. It is possible that, from time to time, the fund managermay 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 investmentrestrictions contained in specific fund documentation such as prospectuses, supplements or placement memoranda or addenda theretomay be relied upon.

Disclaimer

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. Dividend yield quoted is prospective and is not guaranteed.

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 whichthey 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.

FTSE International Limited (“FTSE”) © FTSE 2018. The Industry Classification Benchmark (“ICB”) and all rights in it are owned by andvest in FTSE and/or its licensors. “FTSE” ® is a trademark of the London Stock Exchange Group companies and is used by FTSEInternational Limited under licence. Neither FTSE or its licensors accept any liability for errors or omissions in the ICV. No furtherdistribution of ICB is permitted without FTSE’s express written consent.

The information contained herein including any expression of opinion is for information purposes only and is given on the understandingthat it is not a recommendation.

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Disclaimer (continued)