Janus Henderson UK Responsible Income: May 2024 update

• Manager Andrew Jones is supported by an experienced and collegiate team of fund managers and analysts

• He invests in companies with proven business models and good management teams generating sustainable profits and cash flows

• The fund’s exclusions criteria mean we expect it to perform differently to the broader UK stock market and its peers in the IA UK Equity Income sector

• The fund is on the Wealth Shortlist of funds chosen by our analysts for their long-term performance potential

How it fits in a portfolio

The Janus Henderson UK Responsible Income fund aims to provide a good level of income alongside capital growth over the long term. It’s different to most other funds in the IA UK Equity Income sector as it specifically avoids companies some may find unethical. Some of these areas, such as tobacco and oil & gas companies, feature heavily in traditional equity income funds because of their relatively high dividends. This fund could therefore offer some diversification to a traditional equity income portfolio or be a good addition to a responsible portfolio aiming to provide an income.

Manager

Andrew Jones has managed this fund since January 2012 and has more than two decades of experience managing UK equity income funds. He started his career at Invesco Perpetual in 1995 and in 2005 joined Henderson as a portfolio manager on the UK Equities Team.

Alongside managing the UK Responsible Income fund, Jones is co-manager of the Janus Henderson Global Equity Income and Global Responsible Managed funds. We think this is a reasonable workload, and there is some natural overlap between these funds.

Jones is supported by the wider Janus Henderson Global Equity Income team, which is stacked with experience. Three members of the team – Job Curtis, James Henderson and Alex Crooke – have more than three decades of investment experience individually. Janus Henderson’s collaborative culture means Jones can make the most of the experience around him.

He also has access to a bank of analysts, many of whom cover UK companies. Overall, we think Jones has the resources required to do his job well.

Process

The fund mainly focuses on dividend-paying companies in the UK. The focus is on large and medium-sized companies, although the manager does have the flexibility to invest in higher-risk smaller companies too.

The investment process starts with a screen which excludes companies with significant involvement in areas some investors consider unethical, such as alcohol, armaments, gambling, non-medical animal testing, nuclear power, tobacco and fossil fuel power generation (although companies generating power from natural gas may be allowed if the company's strategy includes a clear plan to transition to renewable energy power generation).

All investments must also be compliant with the UN Global Compact (a United Nations pact on human rights, labour, the environment and anti-corruption). The screening process is monitored and checked by Janus Henderson’s Ethical Oversight Committee and appointed third party Vigeo Eiris, one of the largest environmental, social and governance (ESG) research companies globally, so we’re confident there’s sufficient oversight.

From the remaining universe, Jones looks for companies with proven and understandable business models, high-quality management teams and strong positions in their industries. He thinks about how the company defends its position through competitive advantages like brand strength and intellectual property, and whether those advantages can endure over time. He also likes companies in a strong financial position with plenty of cash flow, allowing them to reinvest for future growth, while at the same time rewarding shareholders with rising dividends.

Finally, he considers the company’s valuation, applying a range of valuation techniques that are relevant to the company and the industry it operates in.

Like with all funds in the IA UK Equity Income sector, Jones can invest up to 20% of the fund outside of the UK. The manager uses overseas exposure to access areas that aren’t available in the UK, or to add diversification during times of uncertainty. The amount invested outside of the UK though has fallen to 2.76%, reflecting the array of opportunities Jones sees in the UK market.

Over the last few months, the manager has sold the fund’s investment in wealth manager St James’ Place. This follows a now more uncertain outlook for the business in Jones’ view and the company now paying a lower dividend than in the past. He also took the opportunity to trim investments in some companies that had performed well, including private equity company 3i and software business, Sage.

Culture

Janus Henderson is a large investment firm with offices all over the world. It was formed in 2017 from the merger of two long-established groups – US-based Janus Capital Group and Henderson Global Investors.

It values experience and sharing knowledge and ideas between investment teams is an important part of the culture. Managers have the flexibility to tap into the wider group’s resources for ideas and insights, but also have the freedom to do their own research and form their own views without having a ‘house view’ placed on them.

ESG integration

Janus Henderson aims to be a responsible steward of investors’ money, and ESG is an important part of this. All fund managers have access to ESG scoring models and customised ESG research, but the firm believes ESG considerations should go beyond examining numbers. Company site visits, speaking to workers and questioning company management are just some of the ways fund managers are expected to actively assess a company’s ESG credentials.

Investment teams across Janus Henderson actively engage with the companies they invest in, and the firm’s longstanding Responsible Investment & Governance team provides centralised support on voting and engagement. The ESG Investments team carries out ESG analysis with a consistent methodology across markets with a focus on financial materiality

When it comes to voting, Janus Henderson has a Proxy Voting Committee, which is responsible for establishing the firm’s position on major voting issues and creating guidelines overseeing the voting process. The Committee is comprised of representatives from various business areas, including portfolio management, corporate governance, accounting, legal and compliance. The firm’s full proxy voting history is published annually, although no rationale is provided. There is more detail on voting and engagement, including case studies, in the firm’s annual ESG Company Engagement & Voting Review report

Cost

The fund’s annual ongoing charge is 0.85%. This is a little higher than other equity income funds on the Wealth Shortlist and investors should be mindful this sets a higher hurdle for the manager to deliver positive returns. The HL platform fee of up to 0.45% per year also applies, except in the HL Junior ISA, where no platform fee applies.

Please note the fund takes charges from capital, which could boost the income, but reduces the potential for capital growth.

Performance

The fund has performed well over the long term. Since Jones took control in January 2012 it’s risen by 186.42%*, compared with a return of 142.12% for the FTSE All Share index, representing the broader UK market. Past performance is not a guide to the future.

Over the last 12 months, the fund has delivered a return of 6.14%, lagging behind the 7.50% return generated by the FTSE All Share index, and the 8.07% return generated by the IA UK Equity Income sector average.

Our analysis suggests that the fund’s investments in private equity businesses 3i, and Intermediate Capital Group have been among the largest contributors to the fund’s performance. On the other hand, the fund’s investments in wealth manager St James’ Place and oil and gas company Shell have been among the largest detractors from performance.

The fund’s exclusions mean we expect it to perform differently to the broader UK stock market, and its peers in the IA UK Equity Income sector. We think Jones has done a good job of growing the income over time, particularly given the additional challenge of managing a fund that excludes some of the investable universe, and delivering good total returns for investors.

At the time of writing, the fund yields 4.00%, although income is variable, not guaranteed. Yields are not a reliable indicator of future income.