JPMorgan Global Growth & Income (JGGI)

30/09/2024

Results analysis from Kepler Trust Intelligence

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. 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.

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. 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.

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, increasing 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.

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.

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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