Navigating the Market: The Enduring Appeal of Value Investing in the UK
In the dynamic world of investment, where trends can shift as rapidly as market sentiment, a steadfast approach to “value investing” is proving its mettle. Managers at the £1.9 billion JOHCM UK Equity Income fund are ardent proponents of this strategy, focusing on acquiring dividend-paying UK stocks they believe are undervalued. The core tenet of this philosophy is the anticipation that the broader market will eventually recognise these overlooked assets and reprice them accordingly, leading to capital appreciation.
This investment style has, in recent years, taken a backseat to the more fashionable “growth investing.” Growth investing typically targets companies, often in the technology sector, that are experiencing rapid expansion and are projected to see substantial profit increases. However, Clive Beagles and James Lowen, the seasoned managers of JOHCM UK Equity Income, continue to champion value investing with unwavering conviction and considerable success.
A Legacy of Strong Performance
Since its inception 22 years ago, the JOHCM UK Equity Income fund has consistently delivered for its investors. It has achieved an average annual dividend growth of 9 per cent, coupled with total annual returns also exceeding 9 per cent. The fund’s resilience and ability to generate wealth are further underscored by its performance over the last five years. During this period, it has generated a remarkable total return of 97 per cent. This figure significantly outperforms both the average return of its peer group in the UK equity income sector (61 per cent) and the benchmark FTSE All-Share Index (74 per cent).
“In recent years, there has been a wholesale clear-out of value investing,” observes 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 further elaborates on the fund’s income-generating capabilities, stating, “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.” While acknowledging that dividend growth might be more subdued in the coming year, potentially leading to a low-single digit increase, Beagles remains confident in the fund’s enduring appeal to those seeking a steady income stream.
The fund’s track record for dividend payouts is particularly robust. Over its entire history, the annual income distributed to investors has only declined on two occasions: in 2009, a period marked by the global financial crisis, and again in 2020, a year profoundly impacted by the Covid-19 pandemic and subsequent economic lockdowns.
Identifying Opportunities in a Divergent Market
While Beagles concedes that certain prominent UK stocks, such as AstraZeneca, London Stock Exchange, RELX, and Rolls Royce, may currently appear relatively expensive, he firmly believes that the UK stock market remains replete with “cheap stocks.” He likens the market to “two markets in one, and we’re fishing in the market-labelled value.”
These attractive investment opportunities are not confined to a single segment of the market. They can be found within the blue-chip FTSE 100 index as well as the broader FTSE 250 index. However, it is the smaller and medium-sized UK companies, often with a more domestically focused business model, that particularly capture the attention of the fund’s managers. These companies currently represent nearly 47 per cent of the fund’s total assets, highlighting the managers’ strategic emphasis on this segment.
Lowen expresses optimism about the prospects for these companies, noting, “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.”
Strengthening the Team for Future Growth
Beagles and Lowen have been at the helm of JOHCM UK Equity Income since late 2004 and show no signs of stepping down. In a strategic move to further bolster the fund’s capabilities, they have recently expanded their investment team. Josh Herson has been appointed as a third fund manager, bringing a wealth of experience to the existing structure. Herson previously held the position of head of portfolio management at the wealth management firm Brooks Macdonald.
“He will add value to what we do,” states 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.”
The fund’s operational efficiency is also noteworthy. Annual charges are maintained at a reasonable 0.67 per cent, and dividends are distributed on a quarterly basis. As a broader entity, JOHCM UK Equity Income manages a substantial £17 billion in assets, employing investment managers renowned for their proven track records and their commitment to robust investment processes across all their funds. This combination of a disciplined investment philosophy, strong historical performance, and a dedicated, expanding team positions JOHCM UK Equity Income as a compelling option for investors seeking value and income in the UK market.
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