JPMorgan UK Small Cap Growth & Income 18 September 2024

JPMorgan UK Small Cap Growth & Income (JUGI) is co-managed by Georgina Brittain and Katen Patel, who have delivered excellent near-term returns as their bottom-up, stock-selection process has tilted the portfolio towards consumer-facing stocks. This has contributed to strong long-term outperformance of the trust’s benchmark (see Performance).

Whilst NAV returns have been strong, the shares have fared even better over the past year, rising over 45% to make JUGI one of the best performing in the sector for share price returns. This has contributed to the Discount closing significantly, with the shares now trading close to NAV.

The discount began narrowing shortly after the trust underwent some corporate activity, combining with stablemate JPMorgan Mid Cap (JMF) in the first quarter of 2024. This has led to a significant improvement in liquidity, as well as lower Charges as the asset base has grown in size. There has been no change in the managers’ approach, with an ongoing focus on quality, value and momentum (see Portfolio).

As part of the changes, the trust implemented a new enhanced Dividend policy that will pay c. 4% of NAV per annum in four equal payments, the first of which was declared in August 2024. This will make the trust one of the highest yielders amongst the peer group.

Outside of these structural changes, the managers have tilted the portfolio towards the recovery in domestic spending. They believe the majority of consumers are in a good position from a wages and savings perspective, which will lead to a corporate earnings boost once economic confidence builds. This has led to a significant overweight to the consumer discretionary sector, which features heavily in the top ten holdings (see Portfolio).

The past few months have been very positive for JUGI, with 2024 seeing an impressive return to form in performance terms for Georgina and Katen. Not only is the trust’s NAV up c. 15% year to date, against a benchmark return of c. 10%, but the shares have fared even better, having risen over 25% (see Performance). The outperformance has largely been driven by stock selection, as it has been over many time periods. We believe this demonstrates the success of the managers’ approach and makes JUGI a compelling option to access the attractive characteristics of UK smaller companies.

We believe the numerous positives of the combination with JMF, including better liquidity, lower charges and the introduction of the enhanced Dividend policy, will have improved JUGI’s investment case. The latter of these has added another attractive element to the trust and should open it up to a wider range of investors. These factors have contributed to the narrowing of the Discount, though we believe this is warranted, especially when considering the excellent performance of the trust.

Georgina and Katen have positioned the portfolio to capture strong performance in consumer-facing stocks, following a tough couple of years. They believe the negative sentiment seen previously, coupled with improving wages and savings, means there are plenty of good value opportunities in the market at the moment, and are being disciplined in ensuring the Portfolio contains their highest conviction ideas. We believe this is another demonstration of the quality of the managers’ approach, and could contribute to further performance, should the momentum continue.