Results analysis: JPMorgan Global Growth & Income

• JPMorgan Global Growth & Income (JGGI) has released its financial results for the year ending 30/06/2024. The trust delivered NAV total returns of 28.0% and a share price total return of 28.8%, outperforming its benchmark, the MSCI AC World Index, which returned 20.1%. Outperformance stemmed from three key sources: owning high-growth stocks; stocks growing their profitability; and strong stock selection from targeting high-quality, attractively valued businesses.
• The trust has also performed well over five years to 30/06/2024, delivering an annual average return of 16.1% in NAV terms and 15.9% on a share price basis, compared to the annualized benchmark return of 10.9%.
• Unsurprisingly, given the strong performance, demand for the shares was high. The trust traded at a premium for most of the year under review, issuing a total of 71,747,847 shares to meet investor demand. This included 6,472,847 new shares issued in connection with a placing and retail offer. The board is seeking permission to be able to place up to another 150m shares.
• Additionally, as part of the combination with JPMorgan Multi-Asset Growth & Income (MATE), completed in March 2024, the board issued 13,546,292 shares in exchange for substantially all of the net assets of MATE.
• Despite strong demand, the trust briefly traded at a discount for one week in June due to the liquidation of a fund of investment trusts, which had a large holding in JGGI. In response, the board repurchased 900,000 shares at an average 2.4% discount to support the share price. At the time of writing, it trades at par.
• The board announced plans to pay a total dividend of 22.80p per share for the financial year starting 01/07/2024, in four equal payments of 5.70p, representing a 23.6% increase from the previous year’s 18.44p dividend.
• Chairman Tristan Hillgarth commented, “The Portfolio Managers have positioned the portfolio to benefit from several major structural trends, such as the AI revolution, cloud computing and the transition to renewable energy, that are likely to drive global equity market returns over the foreseeable future. … These are exciting developments, generating many new investment opportunities, and the Investment Manager’s strong performance track record suggests they possess the skill to identify the best ideas on offer in this rapidly evolving environment.”

Kepler View

These are strong results for JPMorgan Global Growth & Income (JGGI), which in short highlight a 23.6% dividend increase, the successful completion of its combination with MATE and sizeable share issuance to meet investor demand, as the trust traded at a premium for most of financial year. Additionally, performance has been strong, with JGGI outperforming the MSCI AC World Index by 7.9 percentage points, delivering a NAV total return of 28.0%. We think this is particularly noteworthy given the challenging economic backdrop and sharp style rotations, both of which have heightened market volatility.

Excess returns during the latest financial year were driven by strong stock selection, contributing 7.1% to NAV total returns. Notably, semiconductor giants NVIDIA and TSMC saw their share prices increase by 190% and 70%, respectively, fuelled by the rising demand for AI technology and the advanced chips powering it. European healthcare giant Novo Nordisk also delivered significant gains, as demand for its obesity drug continued to climb, boosting its share price.

Although semiconductors and other growth themes remain important in the portfolio, the managers note their concerns about the near-term economic and corporate outlook, pointing to the early warning signs of a potential recession in the US. A key area of vulnerability lies in corporate profits, particularly within low-growth, cyclical sectors like US banks, commodity-exposed companies, and industrial cyclicals, where they argue earnings have been above trend. Consequently, the managers have adjusted the portfolio to mitigate some of these risks, and built up positions in consumer defensive stocks where they think the valuations are as attractive as they have been for 15 years.

Following the sale of US-based insurance group Progressive and Zurich Reinsurance after their strong recent performance, the managers recycled the proceeds into companies exposed to long-term trends, such as the rapid adoption of AI tools, including a new position in memory player SK Hynix. They have also increased the portfolio’s exposure to defensive stocks like Swiss food and beverage company Nestlé and Dutch brewer Heineken, expecting performance to be resilient, even if growth slows.

The extent of the outperformance delivered, despite challenges like geopolitical tensions, COVID-19, spiralling inflation, and sharp style rotations, is impressive. However, it’s important to note that JGGI’s exposure to high-growth and defensive sectors means that the outperformance of cyclical sensitive sectors or lower-quality stocks would drag on relative returns.

In March 2024, the trust completed its merger with MATE, boosting net assets to around £2.8bn. Thanks to its tiered management fee structure, JGGI stands to benefit from lower charges as more assets fall into the cheapest tier. The current OCF is 0.48%, the lowest in the global equity income sector. In addition to lower charges, a merger like this could also result in increased liquidity, a boost to the marketing efforts and broader investor appeal, all of which could help the trust trade close to par or at a premium.  

From a dividend perspective, a key attraction is the board’s ability to draw on its distributable reserves to support year-on-year dividend increase. This affords the managers greater flexibility to invest not only in high dividend-paying companies but also those paying little to no dividends. This combination has led to it offering investors a growing dividend and a premium yield to the market and sector average, whilst also maintaining significant exposure to high-growth technology names, not present in the more traditional equity income strategies.

In our view, this makes JGGI an attractive proposition. Whilst the managers remain cautious about the near-term, they are focused on bolstering the portfolio’s quality and ensuring many of the underlying businesses are exposed to the long-term growth trends they see in the market, calling on the many-well priced opportunities in their universe to do so. Overall, the managers’ track record of stock selection, proven to consistently deliver alpha even during the stylistic biases driving markets, a strong total return profile supporting dividend growth and its very low charges, make it a compelling choice for investors seeking a core global equity portfolio, or enhanced income and capital growth.

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