On November 29, 2017, J.O. Hambro Capital Management launched JOHCM Global Income Builder (JOFIX/JOBIX) managed by the firm’s Multi Asset Value Team. It seeks to achieve a reliable stream of meaningful monthly income distributions, coupled with some capital growth and a vigilant concern for limiting investor losses. It is a multi-asset fund but it is largely unconstrained: it targets US and international income-producing securities including common stock, high-yield and investment grade debt, preferred shares and convertibles, and a variety of hedges including gold, precious metals, currency forward contracts, and inflation-linked vehicles.
In normal times, the fund will hold between 30% – 70% in equities and 40% of the portfolio invested overseas. In less normal times, international exposure might drop to 30%.
It’s designed to be a fund for the next market: income-oriented yet wary of today’s low yields, interested in capital growth yet skeptical of overpriced assets, determined to minimize the risk of permanent loss of capital but agnostic about which asset classes are best suited to do that. It intends to pursue a sort of absolute value discipline, whose core tenet is that the best way to make money long term is first and foremost not to lose it. As a result, the managers intend to only buy assets which provide a sufficient margin of safety. With fixed-income instruments, that means issues with reasonable income and negligible default risk. With equities, it means buying the income-generating securities of good firms only when they’re selling at a 20% or greater discount to the underlying business value. That insistence on a margin of safety means that some traditional equity-income assets – such as US REITs or utilities – are largely missing from the portfolio because they have been sorely overpriced. The advantage they hold over other absolute value investors is that cash is not their only refuge; being a multi-asset fund, they can, as their Team Head observes, “still provide clients with the service of income even while risk assets are not particularly attractively priced.”
Given current valuations, the managers believe they might generate mid to high single digit total returns annually with relatively low risk. Of that, 3.0 – 5.0% might be net income; that is, income after deducting the fund’s operating expenses. By comparison, Vanguard Total Stock Market Index has a yield of 1.54% and Vanguard Total Bond Market Index offers 2.53%.
There is reason to believe they can fulfill their mission. The management team here is highly experienced and, in particular, highly experienced at managing this strategy. Team Head Giorgio Caputo and Robert Hordon co-managed First Eagle Global Income Builder (FEBIX) from inception through July 19 and October 20, 2016, respectively. Both served as analysts on First Eagle’s Global Value Team which oversees First Eagle Global (SGENX) and both had the opportunity to work with renowned investor Jean-Marie Eveillard. Under their watch, FEBIX earned a four-star rating from Morningstar. The only fault that Morningstar’s analysts found with the fund was a fixed-income team that was overcommitted to high-yield securities, which offer risk without substantial diversification for an equity portfolio.
Mr. Caputo describes the five person management team as “purpose built.” That is, he was able to start with the clean slate and hire the associates whose personalities and disciplinary focuses best meshed. In addition to himself and Mr. Hordon, the team includes:
Lale Topcuoglu, a portfolio manager for Goldman Sachs and, in particular, the four-star Goldman Sachs Income Builder (GSBFX). She’s a credit specialist, though has experience managing equities as well.
Rémy Gicquel, who was served as a senior international investment analyst with David Herro’s team on Oakmark International (OAKIX) and Oakmark International Small Cap (OAKEX).
Hugues La Bras, who served as a research analyst for Munich-based Paradigm Capital but, before that, at First Eagle during the tenure of Messrs. Caputo and Hordon.
While the team is in close contact throughout the day, it sits together formally every Friday to reason things through. Rather than responding to top-down mandates (whether about which asset classes they have to hold or what global macro-economic conditions dictate), the team builds and maintains the portfolio one security at a time, always getting back to the same question, “where are we seeing the margin of safety we need and the income we’re seeking?”
Administrative details for JOHCM Global Income Builder.
|Symbol / Clas||Expense ratio, after waivers||Minimum initial investment|
|JOFIX (I Class)||0.99||No minimum|
|JOBIX (Institutional Class)||0.89||$1,000,000|
The fund is available through Pershing, and potential investors can learn about direct purchase via the JOHCM website . They are looking to add Schwab, Fidelity, TD Ameritrade and others to that list, but have limited fund capacity to $10 billion to preserve their investment flexibility
Messrs. Caputo and Hordon have each invested $1,000,000 or more in the fund, Ms. Topcuoglu has invested between $100,000 – 500,000.
The fund’s website required a few extra clicks to reach and is, as yet, thin on content. The “PM (Portfolio Manager) Insights” tab has some current content, though it doesn’t reflect this particular team. Curiously, the “News” articles all date to 2016.