JOHCM UK EQUITY INCOME FUND is hunting under-valued Footsie treasure

The managers who run £1.9billion fund JOHCM UK Equity Income are passionate believers in ‘value investing’.

In other words, they buy dividend-paying UK stocks which they consider under-valued in the hope that, at some stage, the wider market will recognise this anomaly and price them more fairly.

It’s a form of investment that has gone somewhat out of fashion in recent years as a result of the success of ‘growth investing’ – the targeting of companies such as tech businesses which are in expansion mode and expected to grow profits rapidly.

Yet Clive Beagles and James Lowen, of JOHCM UK Equity Income, continue to fly the flag for value investing with aplomb.

Since launching 22 years ago, the fund has averaged annual dividend growth of 9 per cent and total annual returns in excess of 9 per cent, too.

Over the past five years, it has generated total returns of 97 per cent, bettering both the average for its UK equity income peer group (61 per cent) and the FTSE All-Share Index (74 per cent).

‘In recent years, there has been a wholesale clear-out of value investing,’ says Beagles. ‘Sometimes, it’s a lonely place to be, but we are passionate believers and our performance numbers indicate that it continues to deliver for investors in spades.’

He adds: ‘In the year just gone, we are on course to deliver income growth of 11 per cent. For investors, an annual dividend yield of 4.7 per cent is also attractive, especially against a backdrop of falling interest rates.

‘Although dividend growth next year will be more modest – maybe resulting in a low-single digit increase – the fund will still have great appeal to income seekers.’

Over its life, the fund’s annual income has fallen only twice: in 2009 (the end of the financial crisis); and in 2020 (Covid and economic lockdown).

While Beagles concedes that some UK stocks – AstraZeneca, London Stock Exchange, RELX and Rolls Royce, for instance – currently look relatively expensive, he says the UK stock market is still awash with ‘cheap stocks’.

‘It’s two markets in one, and we’re fishing in the market-labelled value,’ he says.

These bargains can be found within the FTSE100 and the wider FTSE250 index. Yet it is smaller and medium-sized UK companies – with more domestically focused businesses – which excite the managers the most.

These account for almost 47 per cent of the fund’s assets.

Lowen says: ‘Last November’s Budget was far from perfect, and there are still risks out there. But if investors see any evidence that the domestic economy is improving, then many small and medium-sized companies should see their share prices improve.’

Beagles and Lowen have run JOHCM UK Equity Income since late 2004 – and have no intention of standing down any time soon.

Yet they have just broadened their investment team with the appointment of Josh Herson as a third fund manager.

Herson was previously head of portfolio management at wealth business Brooks Macdonald. ‘He will add value to what we do,’ says Beagles, ‘bringing his knowledge of the UK economy and behavioural finance to the party. 

‘He will help refresh the franchise we have created and enable the fund to keep evolving and performing.’

Annual fund charges are reasonable at 0.67 per cent and dividends are paid quarterly. As a business, JOHCM UK Equity Income boasts assets of £17billion, employing investment managers with proven track records and robust investment processes to run its funds.