JPMorgan American 06 July 2023
Disclosure – Non-Independent Marketing Communication
This is a non-independent marketing communication commissioned by JPMorgan American. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.
JPMorgan American (LON:JAM) offers investors a core US equity exposure with a distinctive investment strategy with two fund managers selecting stocks, one with a growth style and one with a value style, to form a single large cap portfolio which overall is style neutral, together with a small allocation to small cap growth stocks. JAM has a relatively concentrated portfolio and there is a bias towards quality companies across the different pools, meaning that there are many shared characteristics. The small-cap allocation is up to 10% of the overall portfolio, while the allocation to growth or value stocks can be between 40% to 60%.
Tim Parton and Felise Agranoff are responsible for the selection of growth companies, while Jonathan Simon selects the value stocks. The small cap sub-portfolio is managed by Eytan Shapiro, who has a growth orientated investment approach.
The managers of JAM employ long-term gearing, with the guidelines allowing the managers to gear between 0% and 10%. JAM is currently net geared c. 4%, which is in line with its long-term average.
JAM trades at a c. 4% discount and, as we discuss in the Discount section, the board has committed to using share buybacks when the discount widens. As a result, discount volatility has been low, in keeping with JAM’s proposition as a core US equity trust. JAM is primarily a vehicle for capital growth and currently yields c. 1%.
Again, in keeping with its core proposition, JAM has a very competitive tiered management fee structure and it has a lower OCF than its peer group.
If the investment trust sector’s relatively small North America peer group that JAM sits in is anything to go by, investment trust investors are perennially underweight US equities on a long-term basis. And yet the S&P 500 Index continues to be the largest, and one of the best-performing, equity markets in the world, as it has been for decades. We think JAM’s core, but high-conviction, investment strategy, combined with its extremely competitive management fee structure as discussed in the Charges section, make it a stand-out option for any investor looking to build long-term equity exposure without relying too heavily on a particular investment style. The last two years have been a sharp reminder that one cannot rely on past performance to be a guide to future returns, with growth strategies that have outperformed for many years finding it harder going, while there has been a resurgence for value styles. Higher interest rates make it far less clear cut that one style will dominate for long periods of time and JAM’s blended strategy could be well suited to such an environment. Let’s not forget also that while US small-caps have been somewhat eclipsed in the last decade, that may now be changing. JAM maintains a small allocation to this part of the market as well, in keeping with its core proposition.
- Revised investment strategy has delivered outperformance over four years of difficult markets
- Highly competitive fee structure and ongoing charges
- Strong track record of limiting discount volatility using share buybacks
- Gearing can enhance losses on the downside
- A return to markets led by a very narrow group of stocks may not suit JAM’s managers’ style
- JAM has a low dividend yield