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Fund Profile

JPMorgan UK Smaller Companies 25 April 2023

Disclaimer

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by JPMorgan UK Smaller Companies. 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.

Overview
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Overview

JPMorgan UK Smaller Companies Investment Trust (LON:JMI) is run by two co-managers, Georgina Brittain and Katen Patel, who search the smaller end of the market cap spectrum to find under researched ideas which may offer excellent growth opportunities for the long term. Examples include companies operating in rapidly growing new markets or those creating innovation in, or disruption of, existing industries. The managers primarily focus on an individual company’s fundamentals when assessing its value; however, the market backdrop can often affect these. More recently, they have reduced the trust’s exposure to companies which are reliant on consumer spending, and added to banks and energy companies, which are likely beneficiaries of the inflationary environment (see Portfolio).

The trust has delivered strong long-term Performance, which has been primarily driven by stock selection, aided by the well-resourced team the managers have at their disposal. The managers believe the market has been driven by sentiment over the past year, and not fundamentals, which has been a headwind to relative performance. However, they now believe UK equities are very attractively valued, especially when compared to equities within other developed markets. The managers also highlight that their portfolio is trading with a better free-cash flow yield and return on invested capital metrics than the index.

JMI is trading at a 14.1% Discount, at the time of writing, notably wider than its five-year average. It is also wider than the sector average, despite having one of the best performance records compared to its peer group.

Kepler View

Georgina and Katen have been working together on this trust for nearly ten years and their long-term Performance has been strong, with JMI being one of the best performers in the sector. We believe the quality and stability of the management team is one of the key advantages of this trust. The strength in depth of the analyst team available to the managers should help them to navigate the current choppy markets and take advantage of the valuation opportunities (see Portfolio).

We believe this opportunity is further enhanced by the Discount, which is wider than its five-year average, despite the managers’ track record of delivering alpha and beating the peer group. There are several factors that could lead it to narrowing in the future. First, smaller companies often (but not always) outperform in periods of economic recovery and there are some indications that the climate is stabilising; secondly the UK market is very undervalued when compared to developed market peers which could lead to a spike in M&A; and thirdly, the managers’ stock selection capabilities have led to long-term outperformance in the past.

Bull

  • Strong long-term performance delivered through stock selection
  • Trust is trading at a wider-than-average discount
  • Smaller companies could benefit from a pick-up in sentiment about the UK

Bear

  • Smaller companies often underperform in periods of economic weakness
  • Gearing can amplify losses, as well as aid potential upside
  • Growth style could struggle in higher interest rate environment
Continue to Portfolio

Fund History

25 Jan 2024 Fund Analysis
JMI’s proposed combination with JMF will offer investors a range of potential benefits…
10 Jan 2024 Definitely maybe
Fund flows and discounts may shed some light on a once-in-a-generation opportunity…
13 Jul 2023 Video interview with JMI Manager Georgina Brittain
We talk valuations, M&A and the attractions of UK small caps...
25 Apr 2023 Fund Analysis
Macro concerns have knocked JMI to a discount, despite the managers’ strong long-term performance…
13 Apr 2023 Far from the madding crowd
Smaller nimble companies, both public and private, may be best placed to navigate the current environment…
06 Apr 2023 Fallen Kingdom?
Since the UK was described as a ‘Jurassic Park’ stock market, it has outperformed. Is this a new age for the stock market..?
18 Jan 2023 Fortune favours the brave
Our research suggests a recession has already been priced into small cap trusts, but risks abound...
11 Jan 2023 Solving the Rubik’s Cube
We reveal the winners of our investment trust ratings for 2023…
06 Jul 2022 Fund Analysis
JMI’s widening discount may be an attractive entry point into the best-performing UK small-cap trust over the long term…
22 Jun 2022 Spider's web
We outline our new quantitative system for mapping the crucial performance characteristics of investment trusts…
16 Feb 2022 Perfectly formed
Our research suggests that investment trusts really are a better way to gain exposure to smaller companies…
05 Jan 2022 Kepler’s top-rated trusts for 2022
We unveil the winners of our ratings for 2022 in the Growth, Income & Growth and Alternative Income categories…
13 Oct 2021 Results analysis: JPMorgan UK Smaller Companies
JMI has built on its excellent track record, taking a balanced approach to a dynamic asset class…
08 Jul 2021 London Calling
UK equities represent a ‘once in a generation’ opportunity according to the managers who joined us at our event last week…
07 Jul 2021 Slides and Audio: JPMorgan Smaller Companies
Download the presentation and listen to the audio from our 'Cool Britannia' Summer conference on 01 July...
07 Jul 2021 Slides and Audio: Roundtable - Small is beautiful
Download the presentation and listen to the audio from our second roundtable discussion with Dan Whitestone, Georgina Brittain and Judith MacKenzie...
23 Jun 2021 Time to back Britain?
After a challenging period for the United Kingdom, we wonder if it could be the most exciting market on a five-year view…
21 May 2021 Fund Analysis
JMI has a strong long-term track record of outperformance...
25 Mar 2021 Results analysis: JPMorgan Smaller Companies
JMI continues to be a compelling proposition for investors even on a tighter discount, after releasing a strong set of half-year results this morning…
06 Jan 2021 This time next year Rodney...
We review the performance of the team’s ‘top picks’ for 2020 – including some proper plonkers – and place our bets for the year ahead…
23 Dec 2020 Fund Analysis
One of the strongest performing trusts in 2019, we look at JMI and the portfolios continued outperformance of the benchmark and peers…
21 Jul 2020 A game of four quarters
Seven trusts, two quarters. Are our team still happy with their trust picks for 2020?
27 Feb 2020 Fund Analysis
After an extraordinary 2019, JMI has seen its discount once more slip, offering a potentially attractive entry point…
02 Jan 2020 Crystal Balls
Drunk on our success in choosing funds to perform well in 2019, the team at Kepler Trust Intelligence is back at the table with a glint in its eye…
07 Aug 2019 Fund Analysis
The managers of JPMorgan Smaller Companies apply a clear, consistent process to UK smaller companies to produce consistent returns...
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