Fund Profile

Disclaimer

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by JPMorgan European Discovery. 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
JEDT’s wide discount may be an opportunity to ‘buy the dip’ in a high-quality portfolio…
Overview

JPMorgan European Discovery (JEDT) offers investors a portfolio of high-quality European small- and mid-cap equities. JEDT’s managers, Francesco Conte and Edward Greaves, have created a portfolio which not only demonstrates better quality metrics but also superior valuations and earnings momentum than the wider market. All three aspects are important outcomes of the team’s investment process.

Francesco and Edward tell us they hope that their diverse set of high-quality companies will insulate JEDT from the worst turmoil in Europe’s equity markets, arising from rising global inflation and the outbreak of the war in Ukraine. As we discuss in the Portfolio section, the managers believe high-quality companies are best positioned to absorb the impacts of inflation, either by being exposed to long-term structural growth trends that can sustain earnings growth despite inflation or by being better able to pass on increases in input prices to their consumers and limit those impacts.

JEDT has outperformed its benchmark in four of the past five calendar years, but has lost more than the market in the volatile past two quarters. Yet as we point out in the Performance section, this has primarily been the result of stylistic headwinds rather than poor stock selection, with higher energy costs and the team’s focus on quality having impacted the trust over 2022. JEDT currently trades at a 18.3% discount, the widest in the peer group. In the last six months the board has initiated a series of buybacks which may potentially place a floor on JEDT’s discount.

Analyst's View

JEDT’s wide discount could be an opportunity to ‘buy the dip’. The Ukraine war has led to an indiscriminate sell-off in European markets, and investors may find that many high-quality businesses – including those in JEDT’s portfolio – are trading at cheaper valuations. This could provide a good long-term entry point, with the possibility of a quick rebound if a peace deal is signed.

In any case, investors have the opportunity to capitalise on a double discount with JEDT, offering the potential powerful combination of a narrowing share price and improving NAV returns. Moreover, JEDT’s board has been proactively buying back shares at around a 16% discount, which may help alleviate investors’ concerns about further widenings. Additionally, we think JEDT’s portfolio of high-quality companies may be able to offset the impact of rising inflation, which we believe is the major long-term risk factor facing equity markets.

Even for investors who do not wish to time the market during such a volatile period, JEDT can still represent a potential ‘core’ equity exposure for investors looking for European small-cap exposure, as the predominant factor underpinning the portfolio is quality. We believe this factor is important with long-term holdings, as high-quality companies are more likely to weather difficult economic periods.

Bull

  • Discount offers attractive entry point
  • Clear focus on high-quality companies which may insulate the portfolio from inflationary forces
  • Has demonstrated strong stock selection, despite the stylistic headwinds

Bear

  • Use of gearing can enhance losses on the downside
  • Has recently been swept up in a wider growth stock sell-off
  • Europe is currently in the grip of heightened political risk
Continue to Portfolio

Fund History

21 Jun 2022 Fund Analysis
JEDT’s wide discount may be an opportunity to ‘buy the dip’ in a high-quality portfolio…
09 Sep 2021 What next for European equities?
After a strong period for European equity markets, we ask whether this trend can continue…
01 Sep 2021 Fund Analysis
JEDT’s shares are trading at the widest discount of any European trust…
04 Aug 2021 Uncovering Europe’s hidden gems
European equities are back in vogue, with massive fiscal and monetary support, economic re-openings, and a sizable valuation discount relative to the US. All of which provide an attractive macro backdrop for investors according to JPMorgan...
28 Apr 2021 The next value opportunity?
Two of our analysts debate whether Europe's improving vaccination programme will be the next opportunity for investors in their pursuit of returns...
04 Feb 2021 Eurovision 2021
We highlight potential opportunities within the European investment trust space…
04 Feb 2021 Fund Analysis
JESC offers investors a structured approach to European small-cap investing at an attractive discount…
11 Nov 2020 Now that's what I call a discount!
Presentations and audio from our conference focussed on discount opportunities in the investment trust sector…
11 Nov 2020 Slides and Audio: JPMorgan European Smaller Companies
View the presentation and listen to the audio from our 'Discounts in Focus' event on 05 November...
22 Jul 2020 Fund Analysis
With an exceptional track record, JESC offers a balanced portfolio at an attractive discount…
08 Jan 2020 Fund Analysis
Offering a unique approach to identifying opportunities, JESC is currently trading at an unusually wide discount…
26 Jun 2019 Measure for measure
In the first of a two-part series, we examine the tools investors can use to assess how active a manager actually is…
24 Apr 2019 Nothing compares to EU
Currently one of the financial world's most unloved regions, we look at the sectors that are unique to Europe and how the persistent pessimism has presented attractive opportunities…
24 Apr 2019 Fund Analysis
With a rebalanced portfolio, JPMorgan European Smaller Companies (JESC) offers a balanced portfolio poised for rising market volatility...
28 Nov 2018 Every cloud...
The endless grinding negativity of Brexit has driven investors away from Europe in scores, but some managers see rich pickings for those willing to take the risk...
26 Nov 2018 Fund Analysis
The trust has delivered impressive results over the 20 years that manager Francesco Conte has been at the helm...
30 May 2018 Forza Italia!
Recent weeks have seen Italy's rocky relationship with the EU thrust into the spotlight once again, but apart from fresh volatility - how much has really changed?
24 Jan 2018 Fishing in the right pond...
We analyse where active managers have been able to add the most value relative to their benchmark indices...
24 Jan 2018 Fund Analysis
A high conviction European smaller companies portfolio managed by a team which has generated sector beating returns...
08 Nov 2017 Straight talking...
Bronwyn Curtis OBE, chairman of JPMorgan Asian, tells us why making the tough decisions and addressing the elephant in the room are her forte...
25 Jul 2017 Fund Analysis
A trust focused on smaller European small-caps managed via a bottom-up, benchmark-agnostic approach...
View all

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