JPMorgan American (JAM) offers investors a core exposure to US equities. In June 2019 it adopted a new approach, blending two dedicated value- and growth-based allocations. This is achieved through two experienced investment managers, Jonathan Simon (value) and Timothy Parton (growth), with each manager given up to 20 positions and up to 60% of the trust’s assets at any one time.
The two come together to create a wholly bottom-up portfolio which balances both styles, never taking a substantial overweight in a single factor but rather overweighting companies which reflect each manager’s highest convictions. JAM also maintains a small allocation to small-cap growth stocks, intending to thereby offer investors a core allocation to US equities.
Recently, the team have seen fit to make a slight reduction to the trust’s growth allocation, which had rallied sharply in 2020. They have instead begun to increase the weighting to value stocks, specifically financials. The current split is 52% growth and 48% value. 2020 marked a very dramatic year for the stock market, but one JAM was well positioned to take advantage of thanks to its approach. The trust has so far generated an NAV total return performance of 42% since June 2019 (when the current approach was implemented), outperforming the S&P 500’s 33.4% return.
JAM also has the lowest charges of any North American trust with an expected OCF of c. 0.4% once the management fee waiver expires, far below the average 0.9% charged by its peers. While investors may view these as attractive features, JAM currently trades at a 5.9% discount, although this is slightly narrower than its peer group’s average discount.
Thanks to its distinctive balanced approach, we believe JAM offers investors an attractive solution for a ‘core’ exposure to US equities, or potentially even a ‘one-stop shop’ exposure to the US equity market. This is thanks to its ability to balance the two dominant styles of US equities – growth and value – in a single portfolio.
While Jonathan and Tim have had a relatively short tenure as managers of JAM, we believe that there is sufficient evidence in their success in managing the growth/value balance of the portfolio to warrant a narrower discount. This is evidenced by JAM’s recent outperformance in a market characterised by rapid shifts between growth and value styles, as well as by the team’s strong track record of managing a similar strategy in their open-ended vehicle.
We believe that JAM’s current discount offers a potentially attractive entry point, and we feel that there are medium-term catalysts for its reversion. The most obvious catalyst is a continuing track record of outperformance and the board’s prudent policy of share buybacks. We also believe that the complexity in navigating the US market, especially over the medium term once the euphoria surrounding value stocks dissipates, may support investor demand for a ‘core’ equity product like JAM if it becomes harder to discern which style will outperform. Even in the case that one style outperforms the other, both managers’ alpha generation and balanced approach could allow JAM to perform well over the cycle.
|Has outperformed both peers and benchmark during the COVID-19 crisis
||Can underperform during periods of exclusively growth- or value-driven markets
|Offers investors a catch-all US equity portfolio, utilising both growth and value investment styles
||Gearing can amplify losses on the downside
|Lowest OCF in the sector, even after management fee waiver expires
||The team still have a relatively short track record managing the trust (albeit with a long track record elsewhere)