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Fund Profile

JPMorgan US Smaller Companies 28 March 2024

Disclaimer

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by JPMorgan US Smaller Companies. 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.

Overview
JUSC: diversification and valuation opportunity in US smaller companies…
Overview

JPMorgan US Smaller Companies’ (JUSC) manager focusses on quality growth investments in the small and mid-cap space in the US. Led by Don San Jose since 2008, the team emphasises a hands-on approach to investing, preferring to 'walk the floor' of its investee companies to really get to know them. Don has two experienced co-managers in Dan Percella and Jonathan Brachle, together with a dedicated research team as well as the wider 40-strong US equities team. The team manages c. US $10bn in similar strategies to JUSC.

JUSC has a good long-term track record of outperforming its benchmark, the Russell 2000, beating it over five and ten years, with NAV total returns of c. 51% and c. 204% for those two periods, compared to the benchmark's c. 40% and c. 158% (see Performance). While the five-year performance is positive, this period has seen a marked outperformance by larger caps, and the team believe this leaves smaller companies on very attractive relative valuations (see Portfolio).

Currently, the trust is c.2% net geared, having been geared c.7% for much of 2023. The team has recently reduced Gearing as they see a mixed picture for the US and feel it appropriate to reduce risk. JUSC pays a single small dividend, being primarily focussed on capital return. The current historical yield is 0.6%.

The current discount is c. 9% compared to a five-year average of 6% and the board has been buying shares back since early 2022 in response to the widening discount. Within that period JUSC has traded at a premium and issued shares, and we look at this in more detail in the Discount section. JUSC also has a backstop continuation vote every five years, with the next one due at the 2025 AGM.

Analyst's View

2023 was a year for large-cap equities in the US and elsewhere, most notably the so-called Magnificent Seven US-listed stocks. The S&P 500's technology sector was up c. 58% in US dollar terms during the year, and this keeps, or even stretches, the valuation gap between US small and large caps and leaves small caps at the low end of historical valuations.

While the team remains constructive on the portfolio companies, they do see a mixed picture for the US economy, noting on the one hand that the consumer remains supportive, but with unemployment at very low levels there is a sense that inflation could remain stubborn, and as a result have taken a slightly more cautious stance on gearing, reducing it to c. 2%. The board has used buyback powers in response to the wider-than-average discount, albeit one that is not out of line with the wider investment trust sector, which will enhance NAV and may help reduce discount volatility. When a few stocks drive the performance of a whole stock market, it's very easy to forget about important disciplines such as diversification and valuation, and JUSC offers both to investors looking for US equity exposure, with the additional potential kicker that smaller companies have historically performed extremely well at the tail-end of inflation and interest rate cycles.

Bull

  • High-quality portfolio of US smaller companies on a lower valuation than the market and trading at a discount to NAV
  • Board is using share buybacks to enhance NAV
  • Smaller companies historically perform well at the end of rate and inflation cycles

Bear

  • A mixed picture for the US economy reflected in low gearing
  • Smaller companies can be more volatile than their larger counterparts
  • Investor sentiment toward smaller companies is currently weak
Continue to Portfolio

Fund History

28 Mar 2024 Fund Analysis
JUSC: diversification and valuation opportunity in US smaller companies…
06 Sep 2023 You should be dancing…
North America should be a core part of any portfolio…
19 Apr 2023 Fund Analysis
JUSC offers all-weather exposure to a dynamic market…
11 Jan 2023 Solving the Rubik’s Cube
We reveal the winners of our investment trust ratings for 2023…
07 Sep 2022 American muscle
Beating US indices is a monumental task. We examine the closed- and open-ended North American sectors to see how they have fared…
31 May 2022 Fund Analysis
JUSC’s quality bias has driven its recent outperformance, although it still trades on a historically wide discount…
17 Nov 2021 How Do You Like Them Apples
Judging whether the US market is expensive is not as easy as many make it out to be…
22 Sep 2021 Fund Analysis
While the economic outlook may be good for JUSC’s quality bias, its current discount offers an attractive entry point…
15 Sep 2021 Bargains galore
We review our discounted opportunities portfolio, with one constituent rallying more than 30% in just two months…
22 Apr 2021 FAANGs for the memories
The massive outperformance of mega-cap tech last year could become a thing of the past if anti-trust legislation and negative sentiment starts to bite...
31 Mar 2021 East End boys and West End girls
Our analysts debate whether the US or Asian stock markets will deliver the best returns over the next decade…
03 Mar 2021 Fund Analysis
JUSC offers investors a portfolio of high-quality US small caps, and has a strong record of performance and alpha generation…
19 Nov 2020 Hope springs eternal
The US election has given long-suffering value investors new hope of a 'great rotation' in their favour, but that light at the end of the tunnel could in fact be a train…
11 Aug 2020 Fund Analysis
Trading at an attractive discount relative to its history, JUSC offers a diversified portfolio of high-quality companies…
14 May 2020 Sea change
While global giants like Amazon still hold the weather gauge, we examine the long term prospects for a shift in the prevailing wind...
30 Jan 2020 Fund Analysis
One of the strongest performers in its North American sectors, JUSC, offers exposure to high-quality companies with strong management teams…
28 Aug 2019 Quality street: can the dominant style continue to outperform?
For several years, quality as an investing style has dominated, outperforming both value and growth. We examine why the case for quality remains strong and the importance of taking an active approach…
24 May 2019 Fund Analysis
A trust that offers investors an excellent way to gain exposure to high quality, growth companies, through a low beta portfolio of high quality companies...
12 Sep 2018 Fake news...
Small cap funds, despite their reputation to the contrary, are less volatile and have delivered better risk adjusted returns than their large cap peers...
12 Sep 2018 Fund Analysis
This trust has a highly-resourced management team, which has produced consistently strong alpha, outperforming the Russell 2000 index in each of the past five calendar years...
26 Apr 2018 The $23.9 trillion dollar question*
Are US equities, which have hit record highs on 71 occasions in the last 12 months, overpriced or are they actually trading at a price worth paying?
31 Jan 2018 Fund Analysis
A stockpicking portfolio which has delivered outstanding alpha over the long term, now trading at a discount...
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...
28 Jun 2017 American dream
We meet the chairman of JPMorgan US Smaller Companies and ask what she is doing to drum up interest and close the discount on this top performing trust...
31 Mar 2017 JPMorgan Emerging Markets Investment Trust
A large, well resourced trust offering very broadly diversified exposure to the world's emerging markets...
28 Feb 2017 Don’t wanna be an American idiot…
After such a chaotic start to Donald Trump's presidency, we look at potential options for investors in the US equity space...
27 Feb 2017 Fund Analysis
A small-cap focused US equity trust with a track record of alpha generation and outperformance relative to its peers and the wider market...
27 Feb 2017 Expert view: What next for the USA?
BlackRock North American Income fund manager Tony DeSpirito thinks we are entering a pro-growth environment...
View all

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