JPMorgan MidCap 24 November 2021

Managed by Georgina Brittain and Katen Patel, JPMorgan Mid Cap (JMF) seeks reasonably priced, high-quality companies experiencing positive operational momentum, preferably benefitting from structural growth. The managers believe that companies with these features are best suited to meeting the trust’s objective of generating long-term capital growth and that the UK mid-cap space offers a rich opportunity set of nimble, innovative, well-managed companies matching their investment criteria.

As discussed in Portfolio, the managers are committed to a disciplined process that has been refined over many years, combining qualitative and quantitative elements to build a balanced portfolio whose relative performance is not overly influenced by stylistic biases. The balanced disciplined approach has produced an excellent and consistent track record of outperformance (see Performance).

Georgina and Katen are currently positive in their outlook on the UK mid-cap space. They note that the structural advantages of mid-sized companies over large-cap peers in terms of growth potential and stock-picking opportunities (due to lower levels of broker coverage) are still very much in place and supported by the ongoing recovery in the UK domestic economy.

Despite the strength of JMF’s long term track record and solid performance in the post-March 2020 recovery, the trust is trading at a historically wide discount to its history and peers. As discussed in Discount, JMF has a historical tendency to post NAV outperformance after trading at wide discounts, a potentially attractive entry point for investors looking for UK mid-cap exposure. Additionally, JMF pays a consistent dividend which has been supported by the board deploying revenue reserves. JMF currently yields 2.2% on a historic basis (as at 05/11/2021).

Georgina and Katen have built an excellent track record during their tenure at JMF, the relatively consistent profile of their excess returns demonstrating the potential value of following a disciplined process and sticking to a balanced approach to portfolio construction. This has been especially pertinent with the sharp rotations between value and growth in the market following the COVID-19 pandemic outbreak, and by avoiding making a one-way bet on these factors the managers have allowed their analytical and behavioural edges in stock selection to come through in performance. If an investor shares the managers’ positive outlook on UK mid-caps and prefers a bottom-up, stock-picking approach, then JMF could be a good fit.

We think the current discount, which is wide on a historical and relative basis, might be an attractive entry point, especially given the past tendency for the trust to outperform in the periods subsequent to trading at a wide discount – although there are no guarantees this pattern will repeat.

Looking at the wider UK market, the tailwinds that have seen long term outperformance of mid-sized companies versus large-caps appear to still be in place. The dynamism (as demonstrated by IPO and M&A activity) and greater growth potential of FTSE 250 stocks contrasts starkly with the ‘old economy’ incumbents dominating the FTSE 100 Index. Additionally, if UK mid-caps do continue their long-term trend of outperformance, then JMF should additionally benefit due to the consistent deployment of Gearing by the managers.