Fund Profile

JPMorgan European Discovery 04 February 2021


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.

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Please note - On 16/06/2021, JPMorgan European Smaller Companies announced it has changed its corporate name to JPMorgan European Discovery Trust plc (JEDT).

Click here to read the RNS announcement

JPMorgan European Smaller Companies Trust (JESC) offers investors a diversified portfolio of developed European (ex UK) smaller companies. JESC’s portfolio is constructed using a structured, bottom-up investment process. Managers Francesco Conte and Edward Greaves utilise a three-factor process when constructing JESC’s portfolio, aiming to balance value, momentum and quality factors (as we outline in the Portfolio section).

The investment process is an adaptive one, with the managers willing to adjust their weightings to opportunities they see presented – whether value or growth – something which they have been doing in light of COVID-19. JESC’s underlying companies are often global in reach, with the managers able to invest in companies of up to £8bn in capitalisation. While the team utilise a long-term bottom-up process, a number of common themes emerge through their stock selection, such as sustainability.

JESC has outperformed its benchmark over both a one- and five-year period, generating a one-year NAV return of 29.2% and a five-year NAV return of 100.8%, compared to the benchmark’s respective 13.7% and 70.2% returns. Largely as a result of its more balanced portfolio compared to growthier peers, JESC has underperformed its AIC European Smaller Companies peer group, which generated a one and five year NAV return of 35% and 124.9% respectively. We go into more detail in the Performance section.

While JESC’s primary objective is capital growth, it does pay out most of its revenue return as dividend, with a current dividend yield of 1.4%. JESC currently trades on an 11.5% discount, the widest of its peer group. We believe that this is the result of the broader aversion investors have to European equities, but possibly also due to JESC’s uncharacteristic period of underperformance in 2019.

Analyst's View

We view JPMorgan European Smaller Companies Trust (JESC) as providing a flexible yet ultimately structured approach to European small-cap investing. By using a three-factor approach to portfolio construction, the team are able take a pragmatic approach to different market conditions, as they have done with COVID-19. In what is a volatile sector with underlying companies that have little analyst coverage, we believe this is a clear advantage of JESC’s process. 2020 is a case in point, and despite not being particularly well positioned going into the crisis, the team’s pivot meant the trust outperformed the benchmark by what we view as a considerable margin.

We believe the five-year outperformance of JESC against its benchmark, the MSCI Europe ex UK Small Cap Index, also demonstrates the effectiveness of its investment process. Given that JESC trades at the widest discount of its peer group, we view this as a potentially attractive entry point to the trust. While the discount has already begun to narrow from its 2020 highs (even with the impact of COVID-19 on European markets), we foresee there being potential further tailwinds supporting demand for JESC’s shares – conditional on the team’s post-COVID-19 positioning playing out.

Structured approach to portfolio construction when investing in small caps
Has underperformed peers over five years, more recently largely thanks to being underweight to growth companies
Trades at a wide discount relative to peers
Use of gearing can amplify losses
Long-term outperformance versus benchmark, while currently positioned for a COVID-19 economic recovery
Adaptive investment process means the trust is not easily pigeonholed as regards growth/value
Continue to Portfolio

Fund History

15 May 2024 Why'd you have to go and make things so complicated?
European growth may be more complicated, and positive, than we suspected...
24 Apr 2024 Is ESG finished?
Two of our analysts debate whether it’s time to give up on ESG…
21 Jun 2023 Ça plane pour moi
Some of the world's biggest companies are doing just fine in Europe, yet investors shun the region. Time for a rethink...
21 Feb 2023 Fund Analysis
JEDT offers core European smaller companies exposure with an adaptable and flexible investment approach, possibly suited to a changing investment landscape…
12 Oct 2022 The Buck stops where?
The US dollar has surged in 2022, but many are questioning whether this can be sustained...
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...
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