JPMorgan American 17 July 2024
Disclaimer
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 (JAM) has developed a strong track record of total returns through its blended value and growth approach to investing. The trust is predominantly invested in large-cap US equities but does allocate a small percentage to small-caps, currently c. 7%. The small-cap stock selection process has recently been updated to use the same blended growth and value approach as the large-cap portfolio.
JAM has produced strong absolute and relative performance over the last five years, with an NAV total return of c. 121% compared to its benchmark's 106% (to 11/05/2024). Similarly, over one year, in a period where the benchmark performance was driven by a narrow group of stocks, JAM continued to outperform without sacrificing its portfolio diversification, with a 34% NAV total return, ahead of the benchmark's 28% (see Performance). 
The large-cap exposure is managed as a single portfolio but with separate managers selecting for growth and value styles, with each manager selecting 10–20 best ideas. Across both styles the managers favour quality companies with strong cash flows. Felise Agranoff became a co-manager in 2022, working alongside Tim Parton in an 18-month handover period ahead of his retirement. Felise has been with JPMorgan for 20 years and manages a number of other growth strategies alongside JAM. Jonathan Simon has been a co-manager since 2019 and his retirement is scheduled for 2025, with an announcement on a handover due soon.
JAM typically trades at either a small Discount or premium, and year to date has seen the rating move between the two. While trading at a discount the board made active use of share buybacks in support of their policy of buying shares back at anything other than a very small discount.
The trust is modestly geared, using two long-term loans at low interest rates. JAM is primarily targeting capital return and has a low yield of c. 0.8%.
JAM has successfully navigated the last few years where there have been some big shifts between value and growth in the market. As we discuss in the Portfolio section, the current sector bias suggests a value-bias , with an underweight in technology balanced by overweights in real estate, financials and materials. It's important to remember that JAM is a risk-controlled core portfolio, but nonetheless, the portfolio's price to free cash flow ratio of c. 12x is at a significant discount to the average of c. 17x for the benchmark, as the team positions for a soft economic landing .
The transition within the team noted in the Management section is clearly an important moment for the trust, but with long notice periods and a collegiate culture within the wider team, where it is not unusual for two style managers to work alongside each other, we think means that JAM has the best chance possible to affect a seamless transition.
The chart in the Discount section showing how buybacks and issuance have been used to maintain a narrow discount or premium over time should give investors comfort that the risk of a large discount developing is, in our view, low, which is entirely in keeping with JAM's status as a core holding in the world's largest stock market.
Bull
- Successful track record from this core holding in the world's largest stock market
- Track record of maintaining low discount or premium
- Value and growth blend able to adapt to different markets
Bear
- US equities have performed strongly, but risks remain, notably geopolitical
- The longer-term impact of higher interest rates has not yet been fully felt by all US companies
- JAM is primarily a capital growth vehicle and may not suit income seekers
Fund History
