JOHCMGlobalIncomeBuilderFundAbottom‐up,valueapproachtobuildingincome

GiorgioCaputoSeniorFundManagerandTeamHead

JOHambroCapitalManagement– UKAnnualInvestorDay2018

Introduction – Global Income Builder Fund

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Strong and stable income generation

A pure bottom-up process not influenced by top-down asset allocation

Carefully considered value ideas each with a margin of safety

A global approach that seeks value unconstrained by geographic boundaries

A conservative, differentiated approach to global income investing

A value philosophy that can look across the capital structure

The JOHCM Global Income Builder Fund employs a bottom-up, value philosophy across asset classes

Seek first and foremost to avoid the permanent loss of capital

› Warren Buffet’s “Rule number 1” is our primary focus as well

Invest with a margin of safety – value is absolutenot relative

Benchmark-agnostic – be willing to avoid certain asset classes entirely, if overvalued

Value investing is long-term investing –over/under-valuations can persist for years

Bottom-up investors who are able to look across the capital structure are rare in today’s age of specialisation

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Most professionals are assigned to particular market niches, as in ‘I work in the equity

department’ or ‘I’m a bond manager.’

Who, then, makes and implements the decisions that would drive out relative mispricings

between asset classes?

Howard Marks, The Most Important Thing

We are absolute value investors who seek global income with a margin of safety

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Our value investing heritage

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Name Career Team role Recent experience

Giorgio Caputo 22 Senior Fund Manager -Team Head

First Eagle Investment Management - Global Value Team;JANA Partners

Robert Hordon 22 Senior Fund Manager First Eagle Investment Management - Global Value Team

Lale Topcuoglu 18 Senior Fund Manager -Head of Credit

Goldman Sachs Asset Management - Global Head of Alternative Corporate Credit, Co-Head of Global Investment Grade

Remy Gicquel 12 Analyst Harris Associates/Oakmark - International Team;DNCA Investments

Hugues Le Bras 5 Analyst Paradigm Capital;First Eagle Investment Management - Global Value Team

• Messrs Caputo and Hordon have worked together since 2009 and led the development of the First Eagle Global Income Builder strategy, which they co-managed from its 2011 launch until 2016

› Co-PMs of First Eagle Global Income Builder Fund (incepted May 2012) and First Eagle Amundi Income Builder Fund (Sept. 2014)

• Ms Topcuoglu co-managed the Goldman Sachs Income Builder Fund in conjunction with GSAM Value Equities Team

• Mr Gicquel worked with international value investor David Herro on the Oakmark International Fund

• Mr Le Bras worked with Messrs Caputo and Hordon while at First Eagle

J O Hambro – an ideal platform for our global income strategy

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• A “boutique of investment boutiques” with global scale and insight

› 16 autonomous investment teams

› Collaborative culture

› Intellectual freedom – no house view

› Performance-driven

› Transparency of rewards

› Shared infrastructure and resources

› Capacity-limited strategies

Advantages of global reach and specialised knowledge of broader organisation.

**Denotes income-orientation or sovereign focus.

A global fund seeking current income and long-term appreciation

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• 4-6% yield target* maintains ability to grow the principal in real terms over time

› Equity investments contribute to income and drive long-term growth

› Corporate debt capability anchors current distributions

• Value investing process focuses capital on the best risk/reward opportunities

› Focus on generating strong risk-adjusted returns; avoid reaching for yield

A moderate risk income strategy… …that can be part of a diversified portfolio

A tool for wealth managers to use when developing asset allocations for conservative clients and those who have entered distribution phase

*Represents an estimate over a cycle and before fund expenses. Actual income levels will depend on market environments, security valuation and interest rate levels and will be subject to our focus on capital preservation first and foremost.

Distribution-Oriented

Appreciation-Oriented

Global Income Builder

Real Estate / Infrastructure

Equity Income

Equity Appreciation

Partnerships / Royalty Trusts

High Yield / BDCs

Traditional Fixed Income

Bottom-up portfolio construction

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*Under normal circumstances the Fund is permitted to invest in a portfolio of between 30% and 70% equity securities, with the balance of its assets invested in fixed income securities, hedging assets and cash or cash equivalents.

Securities are selected on the basis of their merits as absolute value investments, along with their potential to contribute income to the portfolio

Equity Holdings Fixed Income & Reserve Buying Power

• Typically 40-65% of the portfolio*

• Focus on global dividend-paying equities

• Positions limited to 2% at cost; 3% at market

• Longer term holding period: 3-5+ years

• Quality, stability bias; willingness to relax quality standards only for exceptional risk/reward

• 35-60% of the portfolio

• Underpinned by corporate debt investments

• Positions limited to 3% cost and market

• Somewhat higher turnover due to maturities & calls

• Hedge assets (cash, sovereign debt and gold-related investments) generally between 5-15%

• Approximately 100+ holdings (by issuer) across equity and fixed income provide significant diversification

• Generally at least 40% invested in equities; at least 30% invested in fixed income

• Allocation to hedge assets (typically 5-15%) provides reserve buying power in periods of market stress

• Benchmark-agnostic; low turnover

• Capacity limit designed to maintain access to smaller cap income equities and idiosyncratic debt issues

Persistence

Mar

gin

of S

afet

ySeeking to invest in durable businesses on favourable terms

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Persistence, margin of safety and income drive buy and sell decisions and position size

• Our framework to assess trade-offs emphasises margin of safety and business persistence

These criteria help us to assess a potential investment’s contribution to the strategy’s objectives:

• Capital appreciation - driven by margin of safety and value creation of holdings

• Income - attractive yet sustainable

• Portfolio resilience - aided by valuation discipline and business persistence

Our largest holdings typically display either above average persistence or substantial undervaluation

Assessing business persistence

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Financial Leverage• Debt magnifies business risks and can lead to dilutive rights offerings, equity raises

and debt restructuring; focus on debt ahead of our claim1

Operating Leverage• Significant fixed costs can render operating profits more volatile, and require an

appropriately conservative capital structure2

Cyclicality• Strong businesses with solid balance sheets can improve competitive positions in a

cyclical downturn, but the cycles must be managed3

Disruption Threat• Review of disruptive technologies that risk disintermediation of the enterprise and

assessment of social licence and ESG risks4

Management Quality• Poor capital allocation can impair essentially any investment

• Management’s operating skill is a key risk that must be assessed as well5

Barriers to Entry• The key to earning returns above the cost of capital; also evidenced by strong

market share, profit margins, value chain dominance 6

Secular Growth• Favourable long-term growth dynamics can create a tailwind for business

persistence, while headwinds can lead to damaging pressure7

Assessing margin of safety across the capital structure

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• Margin of safety (MOS) represents the difference between intrinsic value and market value, based on the attachment point to the capital structure

• Emphasis on MOS is both defensive and offensive

› Provides valuation cushion in the event of adverse business developments or analytical errors

› Opportunity for upside potential from temporarily underappreciated securities

• More persistent businesses often require lower discount rates and trade at higher cash flow multiples

› Avoid securities where perception exceeds reality

• We are willing on occasion to own businesses with lower persistence when appropriately compensated for the risk

• MOS criteria makes it difficult to own equity in levered capital structures

We generally require a 20% margin of safety with more needed for businesses with lower persistence

Intrinsic enterprise value estimated at 6x EBITDA

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All Equity Levered Firm

Secured Debt Unsecured Debt Equity

Do not invest unless valuation is 4.8x or less for 20% MOS

Levered firm requires 60% equity discount!

But both debt tranches are covered

Margin of safety can come from a variety of sources

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Company descriptionLeading commercial property landlord and developer in Hong Kong and Mainland China with differentiated expertise in luxury retail.

Investment thesisSignificant discount to private market value of real estate assets with robust cash flow growth expected due to market recovery and project maturation.

An intellectually consistent approach across asset classes

Company descriptionEstablished global provider of outsourced cafeterias, concessions and facility services.

Investment thesisWell-entrenched operator in moderately growing end markets with low customer churn and high long-term earnings visibility. Moderate leverage with significant equity value beneath debt load.

Asset class: CREDIT/HY

(Security: ARMK 5% 02/01/2028)

Country: USA

Issue size: $1.15B USD

Industry:Food and facilities management

Yield to worst: 5.4%

Persistence score: 2.0

Margin of safety: Net debt/EV 36%

Asset class: EQUITY

(Security: 101 HK)

Country: Hong Kong

Issue size: $10B USD

Industry: Real estate

Dividend yield: 4.6%

Persistence score: 2.4

Margin of safety: IV discount 40%+

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.

Source of income driven by bottom-up opportunity set

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Capital is allocated from lower risk to higher risk investments when negative sentiment translates into greater margin of safety

ERA: Equity-oriented Risk Assets

• Income generative equities and debt instruments with equity-like risk/return characteristics

• Drive capital appreciation and deliver income

FIB: Fixed Income Base

• High quality High Yield and Investment Grade debt

• Underpin income generation and provide stable returns

RBP: Reserve Buying Power

• Cash, US Treasury instruments, Gold-related investments

• Capital that can be readily deployed (and may act as a hedge) in periods of market stress to take advantage of attractive prices

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"Risk On" "Risk Off"

Market Environment

ERA

FIB

RBP

• Largest allocation to investments that offer most attractive combination of persistence and MOS.

• Position sizes limited to ensure portfolio diversification

• Avoid over-exposure to individual sectors, geographies or investment themes/factors.

• Add or remove capital to individual positions as price/value evolves

• Ongoing business monitoring to keep valuation current

• Exit positions that no longer offer acceptable MOS

Portfolio and risk management

The investment decision lifecycle

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• Assess barriers to entry / competitive advantage and examine industry dynamics

• Review industry prospects and risk of obsolescence

• Review management history and incentive structure

• Conduct confirmatory due diligence and primary research

• Work towards overall assessment of persistence

Qualitative research

• Select most appropriate valuation methods and estimate business value

• Assess income sustainability

• Avoid being subordinate to significant financial leverage or environmental or other claims

• Work toward overall assessment of margin of safety

Quantitative research

Summary – J O Hambro Global Income Builder

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Strong and stable income generation

A pure bottom-up process not influenced by top-down asset allocation

Carefully considered value ideas each with a margin of safety

A global approach that seeks value unconstrained by geographic boundaries

A conservative, differentiated approach to global income investing

THIS DOCUMENT IS FOR INSTITUTIONAL INVESTORS ONLY.

J O Hambro Capital Management Limited . Registered in England No:2176004. Authorised & regulated by the UK Financial ConductAuthority. Registered office: Ground Floor, Ryder Court, 14 Ryder Street, London SW1Y 6QB, United Kingdom. J O Hambro CapitalManagement Limited is also an investment advisor registered with the US Securities and Exchange Commission under the InvestmentAdvisers Act of 1940.

The registered mark J O Hambro® is owned by Barnham Broom Holdings Limited and is used under licence. JOHCM® is a registeredtrademark 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 purchaseor subscribe for the proposed Funds described in this document; nor shall this document, or any part of it, or the fact of its distributionform the basis of, or be relied on, in connection with any contract.

Recipients of this document who intend to subscribe to any of the proposed Funds are reminded that any such purchase may only bemade solely on the basis of the information contained in the final prospectus, which may be different from the information contained inthis document. No reliance may be placed for any purpose whatsoever on the information contained in this document or on thecompleteness, 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 tothe accuracy, completeness or fairness of the information or opinions contained in this document, and no responsibility or liability isaccepted for any such information or opinions (but so that nothing in this paragraph shall exclude liability for any representation orwarranty made fraudulently).

The distribution of this document in certain jurisdictions may be restricted by law; therefore, persons into whose possession thisdocument comes should inform themselves about and observe any such restrictions. Any such distribution could result in a violation ofthe law of such jurisdictions.

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Disclaimer

THIS DOCUMENT IS FOR INSTITUTIONAL INVESTORS ONLY.

The information contained in this presentation has been verified by the firm. It is possible that, from time to time, the fund manager maychoose to vary self imposed guidelines contained in this presentation in which case some statements may no longer remain valid. Werecommend 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.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 areexposed.

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.

The Investment Manager may undertake investments on behalf of the Fund in countries other than the investors’ own domicile. Investorsshould also note that changes in rates of exchange may cause the value of investments to go up or down.

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.

Sources for all data: JOHCM (unless otherwise stated).

The annual management charge is deducted from capital. This will increase income but may constrain or erode potential capital growth.

Information on how JOHCM handles personal data which it receives can be found in the JOHCM Privacy Statement on itswebsite: www.johcm.com

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Disclaimer