JPMorgan European Discovery 24 April 2019
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.
JPMorgan European Smaller Companies (JESC) aims to provide capital growth from a diversified portfolio of smaller companies in developed Europe, excluding the UK.
The £667m trust (in net asset terms), is managed by Francesco Conte and Edward Greaves and utilises a high-conviction, bottom up, stock picking approach. The team focus on three key characteristics when conducting fundamental analysis on new investment ideas; quality, momentum and value. Companies they select do not need to score well on all three characteristics, but the overall portfolio should have a positive tilt to all three.
Over the longer term the trust boasts a strong track record. Over the past five years to 17th April 2019 for example, according to Morningstar the trust has delivered NAV returns of 70.7%, considerably greater than the benchmark EMIX Smaller European Companies index (52.4%) and the AIC European Smallers peer group (62%). Comparing the trust to open-ended peers in the IA OE European Smaller companies sector, it has also done a good job, outperforming the IA sector average by more than 11%.
More recently, as economic lead indicators deteriorated through 2018, the managers tilted the portfolio towards more defensive stocks, and de-geared. This led the managers to hold as much as 3.5% net cash in Q4 of 2018. Initially this helped them outperform a falling market at the start of Q4, but in retrospect they were too early to buy back into a falling market, which meant that overall they marginally underperformed the benchmark in a more volatile year.
Despite the strong long-term track record, the discount remains wide in absolute terms, but also relative to peers, and currently sits at around 14%.