Fund Research

JPMorgan American

26 April 2018 View latest version
  • A North American equity fund which has outperformed the benchmark over five, ten and 15 years, putting the fund in the top-quartile of both open- and closed-end funds in the region over these time frames
  • The manager has a slight valuation bias, but is otherwise not prescriptive about what category of company he will own, and the portfolio includes growth as well as value stocks, plus large and mid caps as well as small caps
  • The board's active discount control policy has meant that the trust has not traded at a meaningful discount over the past five years, and the shares currently trade at a discount of 4.4%

Summary

Only 17% of managers tracked in the S&P Indices Versus Active (SPIVA) report outperform their benchmark over five years, and looking at the AIC and IA's North America sectors, 25% of all the funds in both of these sectors have outperformed the S&P 500.

JPMorgan American (JAM) has outperformed over five years, as well as over ten years and since the manager took responsibility over 15 years ago, putting the fund in the top quartile of both open- and closed-end funds over these time frames.

JAM's chief aim is to achieve capital growth rather than a higher income, through a portfolio of mainstream North American equities. In addition, they are able to opportunistically harness the growth characteristics of small-caps through a separately managed sub-portfolio.

The managers, aside from a slight valuation bias in their process, are not prescriptive about what category of company they will own, and the portfolio encompasses growth stocks as well as value stocks, plus large and mid-caps as well as small caps. The majority of the portfolio will be invested in large caps (market cap>$3bn), but recognising the portfolio benefits of having small cap exposure, manager Garrett Fish achieves exposure of between 1% and 9.5% through replicating the strategy of the JPMorgan US Small Cap Growth Fund.

There are currently 62 stocks in the large cap portfolio, but as one might readily appreciate, these are generally global businesses that happen to be headquartered and run from the US. In performance terms, the NAV total return since the end of November 2002 has risen by 326%, compared to the S&P 500 total return of 287% (Source: Morningstar, S&P500 30% Withholding Tax) through gradual outperformance over the years. This pattern has been repeated over the past five years, with the trust outperforming peers and the benchmark, albeit with slightly higher NAV volatility than the market.

Dividends are not a principal area of focus for the manager, but dividends paid by the trust have increased over the past few years, led by underlying revenue growth. The current dividend yield is 1.5%.

Gearing is another differentiator which the trust has to its open-ended peers, and has been maintained around the 10% level for the past five years. We understand that the board is undertaking a review of the trust’s gearing policy to coincide with the upcoming retirement of the debenture.

The board has committed to buy shares back when they stand at anything more than “a small discount to NAV”, and last year bought back just over 10% of shares in issue at an average discount of 4.4%. This policy has meant that over time the trust has not traded at a meaningful discount, and shares currently trade at a discount of 4.4%.

Compared to the AIC North America sector, which has (historic) OCFs north of 1%, JAM is significantly cheaper than its peers.

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Fund History: JPMorgan American

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