JPMorgan European Growth & Income 12 September 2023

JPMorgan European Growth & Income (JEGI) provides investors with an active large-cap European equity portfolio that can be considered as a core holding. The trust historically had two share classes separately targetting growth and income strategies, but was consolidated to a single share class in 2021, marrying the growth strategy with dividends paid using a mixture of current revenue, revenue reserves and capital. Over the last five years, JEGI has outperformed its benchmark and peer group both in NAV and share price terms and, as we discuss in the Portfolio section, the team have been using price weakness as an opportunity to build active sector positions in semiconductor stocks, rotating out of energy stocks that helped drive performance in 2022.

This is the second year of JEGI’s new dividend policy, with 4% of the financial year’s opening NAV paid in quarterly instalments. Tracking the rise in the NAV over the year, the dividend was increased by 5% for the year ending 31/03/2024 to a prospective 4.2p, which equates to a 4.5% yield at the current share price.

JEGI is managed by the team of Alexander Fitzalan Howard, Zenah Shuhaiber and Timothy Lewis, all of whom have spent their entire careers at JPMorgan: Alexander for over 37 years, Zenah for 18 and Timothy for ten. JPMorgan, overall, has more than 380 investment professionals, so the team can call on extensive resources across a broad range of topics.

JEGI trades on a c. 12% discount and, although the discount has not narrowed in absolute terms since JEGI’s reconstruction, as we discuss in the Dividend section, the discount has narrowed relative to the peer group against a backdrop of generally widening discounts. JEGI’s board continues to buy shares back while the discount remains wider than 10%, and shareholders also have a 25% performance-related tender offer mechanism as a final backstop.

If one had been told in 2021 that there would be a spike in inflation accompanied by a significant hike in interest rates, along with a hot war in Europe involving a nuclear state, then selling European equities would have been an obvious move - and that’s exactly what happened in 2022. Last year seems likely to remain as a reference year for market analysis for years to come, joining 2000, 2008 and 2020 from this century. Fast-forward to 2023 and, perhaps unnoticed, JEGI and its corresponding equity markets have been moving higher. Does that mean we’ve missed the rally?

As we discuss in the Performance section, this rise in markets has not been matched with a rise in investor sentiment, as measured by looking at European equity fund flows. After one of the largest net outflows ever seen in 2022, this year investors have been sitting on the sidelines even as markets have moved higher. This says to us that if the good operating results that JEGI is seeing across its portfolio continue, there is plenty of latent demand for European equities. JEGI is a core European equity mandate and, married to that, it pays a predetermined dividend that potentially gives it a role in any income portfolio.