JPMorgan US Smaller Companies 30 January 2020
Disclosure – Non-Independent Marketing Communication
This is a non-independent marketing communication commissioned by JPMorgan US 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.
To provide investors with capital growth by investing in US smaller companies with a sustainable competitive advantage and to focus on owning equity stakes in businesses that trade at a discount to their intrinsic value, with strong management teams
JPMorgan US Smaller Companies
JP Morgan Asset Management Inc
Don San Jose; Daniel J. Percella; Jon Brachle;
Association of Investment Companies (AIC) Sector
North American Smaller Companies
12 Mo Yield
Dividend Distribution Frequency
Latest Market Capitalisation
Latest Net Gearing (Cum Fair)
Latest Ongoing Charge Ex Perf Fee
(Discount) / Premium (Cum Fair)
Daily Closing Price
JPMorgan US Smaller Companies Investment Trust (JUSC) aims to provide investors with capital growth through a portfolio of US smaller companies.
JUSC is actively managed, with Don San Jose as the lead manager, supported by portfolio managers Dan Percella and Jon Brachle. The team take a purely bottom-up approach to investing, searching for high-quality businesses with strong management teams. They will not, however, overlook the price they are paying, and a great deal of emphasis is placed on finding these companies at fair valuations.
Currently the portfolio is comprised of 85 companies, and there is a clear tilt towards the larger end of the small-cap universe. The largest sector overweights come from producer durables and materials & processing. We understand, however, that the portfolio is more defensive than one might anticipate from looking purely on a sectoral basis.
JUSC has an exceptional track record relative to both peers and the benchmark Russell 2000 Index, outperforming in eight of the past nine years. In fact, the managers stand out for their alpha generation relative to peers in both the AIC North American sectors (i.e. large-cap and small-cap) while still maintaining a low beta of 0.91 over the past five years to date (22 January 2020). We discuss this in more detail in the Performance section.
The trust is currently trading at a premium of 2.3%, in comparison to its one year average discount of 2.9%.
Over the long term, JUSC has been the standout trust in the AIC North American Smaller Companies sector. It has eclipsed its main competitor Jupiter US Smaller Companies in performance terms, and even when comparing performance and alpha generation to the broader North American large-cap sector, the trust stands out.
This strong performance has been driven through the high-quality approach the managers undertake, while trying not to overpay for opportunities. The success of their approach, which is to find fundamentally strong companies capable of growing faster than the market, can be seen in the historic earnings growth of the portfolio. The average EPS growth for the portfolio over the last five years (to 31 September 2019) was 13.4% against the index’s 8.9% over the same period.
Currently the trust is trading at premium to NAV (2.3%), in comparison to the one year average discount of 2.9%. Given the trust has traded at a premium on numerous occasions throughout 2019, should the premium slip to a discount we would view that as an attractive entry point into a high-quality trust.
|Excellent track record of alpha generation relative to both North American peer groups||The US market is in the latter stages of the cycle|
|High-quality and valuation-led investment approach could be beneficial in an uncertain economic environment||Little-to-no income for investors|
|High levels of alpha, with a lower beta||Gearing can exacerbate the downside (as well as amplify returns on the upside)|