JPMorgan European Growth & Income 10 July 2024

JPMorgan European Growth & Income (JEGI) provides investors with an active large-cap European equity portfolio and could be considered a core holding. The trust has built a good track record of outperformance over the last five years, a period marked by some dramatic shifts in market conditions, and scores well in our consistency analysis highlighted in the Performance section.

The trust simplified its structure in 2022 and JEGI's current strategy is the same as the previous growth share class and the track record can be considered continuous. At the same time, JEGI adopted a Dividend strategy that uses a mixture of current income and reserves to pay a dividend equivalent to 4% of NAV each year, in equal quarterly instalments, with dividends for the year to 31/03/2025 set at a total of 4.8p.

While the last two years have seen investment trust sector discounts widen significantly, JEGI has seen its discount narrow to a position where it is much closer to the peer group average, helped in our view by the simplification of the structure, the dividend policy and the good performance record, together with an active share buyback programme, which is analysed in the Discount section. The trust also has a continuation vote in 2027 which will only be triggered should JEGI underperform its benchmark over five years. At the time of writing JEGI is comfortably ahead of this hurdle, detailed in the Performance section.

JEGI is managed by the team of Alexander Fitzalan Howard, Zenah Shuhaiber and Timothy Lewis: Alexander has managed JEGI for the last 18 years and has been with JPMorgan for over 37 years. Zenah and Timothy both joined Alexander in the JEGI team three years ago, both having had long careers at JPMorgan prior to this.

While we wouldn't instinctively apply the word 'contrarian' to a decision to buy European equities, the long-term fund flows chart in the Discount section seems to suggest that the consensus has been against Europe for some time, with even 2023's excellent recovery for the index, which JEGI comfortably outperformed, not proving tempting enough for investors to allocate capital to European equity funds. And yet some of the stand-out performers last year were European companies, many of which feature in JEGI's portfolio.

In the meantime, JEGI has clocked up an excellent record of outperformance over five years and since its reconstruction in 2022, while paying a dividend equivalent to 4% of NAV each year. The discount has, on average narrowed since the reconstruction , and the board has stepped in with share buybacks on a consistent basis. JEGI's portfolio is positioned quite positively with a bias to some cyclical sectors, albeit ones with underlying long-term positive trends, such as semiconductors, software, services, and discretionary retail. In our view, last year saw a recovery for European equities despite negative investor sentiment towards Europe as implied by fund flows, meaning that there is significant potential for further upside if sentiment changes. JEGI is still on a relatively wide discount and combined with its pro-cyclical stance, could be a major beneficiary of such a shift.