JPMorgan MidCap 28 February 2023
Disclosure – Non-Independent Marketing Communication
This is a non-independent marketing communication commissioned by JPMorgan MidCap. 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.
JPMorgan Mid Cap (LON:JMF) looks to build a portfolio of compelling growth opportunities from the FTSE 250 Index, which co-managers Georgina Brittain and Katen Patel believe offers a mix of opportunities. This includes earlier stage growth companies offering high potential, and industry leaders with the potential to graduate to larger companies (see Portfolio). The managers are supported by the considerable resources of the JPMorgan equities team and a process that considers a wide range of factors to answer three simple questions: is it a good business, is it attractively valued and is the outlook improving?
The managers have been using this approach for the best part of a decade and have provided investors with strong long-term performance over that time. However, the trust has gone through a very challenging period as broader markets have fallen, which has started to have an impact on the medium and longer-term numbers. This demonstrates the trust’s tendency to amplify prevailing market conditions. However it means that, should there be a recovery in 2023, the trust could benefit from this trait (see Performance). The managers also highlight the portfolio is trading at a discount on their preferred valuation metric , despite being higher-quality, as further support for its attractiveness at the current time.
Perhaps as a result of weaker recent performance, the trust has fallen to a wide Discount and, in the past, has rarely stayed at these levels for long. While there are no guarantees, should there be a shift in sentiment to the asset class, it could be a catalyst for a narrowing of the discount. We think, for long-term investors, this may offer an attractive entry point.
Georgina and Katen are two very experienced managers with excellent resources at their disposal, which we believe gives them an advantage in navigating the diverse space and finding the best opportunities for growth. However, the trust has had a particularly challenging 2022. As the trust tends to exaggerate market trends, it was caught up heavily in the sell-off (see Performance). We note the trust has an exceptional track record of doing very well in rising markets, which makes it a potentially exciting option for a recovery play.
In fact, for contrarian investors, we believe this could be seen as an opportunity. The managers have pointed to valuations in some sectors pricing in a deep recession, which recent data indicates may be avoided. On their preferred metric, price to free cash flow, the managers have highlighted the portfolio is cheaper than the market, despite having better quality characteristics. As the trust often performs best in rising markets, we believe there is a compelling case for the trust to bounce back sharply, which could be rewarding for long-term investors. When this is taken in hand with the trust trading at a Discount, it could offer investors further opportunity.
- Highly experienced managers with proven track record
- Trust tends to outperform in rising markets
- Fee changes have resulted in a drop in charges
- Short-term weakness has damaged long-term performance
- Trust often underperforms in market sell-offs
- Gearing can exacerbate downside, as well as amplify upside