With net assets worth north of £1bn at the time of writing, JPMorgan American Investment Trust (JAM) has long been the bellwether investment trust for exposure to North America, offering a core exposure to mainly large-cap stocks. JAM continues to offer this, but since 1 June 2019 has been using a new approach, with the portfolio being managed by two experienced individuals with very different styles – one growth (Timothy Parton) and one value (Jonathan Simon).
Each manager contributes a highly concentrated portfolio of best ideas – at any one time between ten (minimum) and 20 (maximum) holdings. Each has a strong awareness of the other in a portfolio context, and the split between growth and value is expected to remain fairly evenly balanced over time.
The year to date has clearly been a volatile one, with each manager facing different challenges. In the value portfolio, Jonathan has been using volatility to trade up in terms of quality. In the growth portfolio, Timothy has been trimming stocks in which the market has excessive optimism, but is finding lots of new ideas. As such, the growth portion of the portfolio is being allowed to run up to 54% (as at 30/06/2020), rather than being rebalanced.
The unique feature of the strategy – combining concentrated growth and value portfolios – has meant that JAM has been more consistent and less volatile than peers over the past year. The trust underperformed during the market sell-off, but has rebounded more strongly so that it is outperforming peers and is only very marginally behind the S&P 500 since the team took over.
In our view, the investment approach adopted in June last year is highly distinctive. The concentrated strategy seems especially well suited to JAM as a closed-ended fund, where the structural advantages afford more latitude to run concentrated portfolios. The result is a highly attractive core US equity exposure, in our view.
Being fundamental, long-term stock-pickers, we expect that the managers’ historical track record of outperformance should be repeated over the medium term. If this is achieved, the discount might be expected to narrow on a sustained basis. In the meantime, JAM’s board has a commitment to “buy shares back when they stand at anything more than a small discount to NAV”. The board bought shares back consistently through the recent stock-market sell-off, even during the darkest weeks of March. We think that this commitment should be reassuring to investors.
JAM’s current OCF is extremely low at 0.18% (Source: JPMorgan, as at 30/06/2020), but this is expected to normalise this year at 0.33%. In our view, this makes JAM a very competitive proposition on a cost basis relative to actively managed funds, and also against passive funds.
As time goes on, and as the investment trust world gets to know the managers better, there is certainly the potential for the discount to narrow sustainably. Over the short term, the discount of 6.1% looks good value for such a distinct approach to US equities.
|Interesting strategy, which has a strong historical track record
||The managers are relatively unknown in the investment-trust sphere, and a track record will take time to develop
|Large, liquid trust representing the only ‘core’ US strategy in the investment-trust sphere, with the benefit of a highly differentiated approach
||Gearing can exacerbate downside
|Very low OCF