Amid competition from low cost funds and a need to raise its performance game, JPMorgan American Investment Trust (JAM) is proposing a significant change to its investment strategy.
The largest trust by total assets in the Association of Investment Companies’ (AIC) North America sector, JPMorgan American’s board plans to change the large cap component of the portfolio by moving to a higher conviction investment approach to boost returns, while maintaining the ‘core’ US exposure.
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Currently trading on a 4.5% discount to net asset value (NAV), JPMorgan American announces plans to change the large cap component of the portfolio by moving to a higher conviction investment approach. Today the large cap portfolio, whose holdings span Apple, Microsoft, Bank of America and Wal-Mart Stores, speaks for the bulk of the company’s asset base - around 90-100% of the portfolio - with JPMorgan American’s small cap portfolio comprising up to 10% of the portfolio.
However, if given the nod by shareholders at the annual general meeting (2 May), the large cap portfolio will ‘transition’ from a 60-100 stock book led by the wonderfully monikered Garrett Fish to a more concentrated portfolio of between 30-to-40 stocks managed by co-portfolio managers Jonathan Simon and Timothy Parton from the asset management giant’s US Value and Growth teams respectively.
After more than 15 years as the trust’s manager, Fish is ‘moving on to other responsibilities’ at J.P. Morgan. The mooted changes won’t impact the small-cap portfolio, which will still be run by Eytan Shapiro, and JPMorgan American’s investment objective and benchmark will stay the same.
BOOK OF BEST IDEAS
The new look large cap portfolio will combine the best ideas of JPMorgan’s US Value and Growth teams, both of which seek out high quality companies that are underappreciated by investors and the market.
Value specialist Simon focuses on businesses with durable franchises, shareholder-friendly management and strong free cash flows, while growth specialist Parton focuses on businesses with large addressable markets, sustainable competitive advantages and a proven record of delivering their business plans.
‘These complementary investment styles should provide exposure to diversified sources of alpha as the portfolio managers are choosing names from a wide opportunity set incorporating value and growth names,’ reads today’s statement.
Dr Kevin Carter, the chairman of JPMorgan American, explains ‘the board believes a more concentrated investment approach for the company’s large cap portfolio, combining the best ideas from the manager’s growth and value investment teams, will offer attractive prospects for the company going forward.’
REDUCING COSTS
Alongside the proposed investment process changes, the board has negotiated the removal of the performance fee backdated to 1 January 2019 alongside a waiver of the management fee for a period of 9 months from 1 June 2019, although the management fee remains unchanged.
Following that period, the management fee will resume at the current rate of 0.35% per annum on the first £500m of net assets; 0.30% per annum on net assets above £500m up to £1bn; and 0.25% per annum on net assets above £1bn.
THE NUMIS VIEW
Numis Securities points out that ‘JPMorgan American’s historic performance has closely mirrored the S&P 500. In 2017, the board tweaked the fund’s approach after commissioning a report into how the manager’s investment style and actions had impacted upon performance over his 14 year tenure. This led to Garrett Fish running a slightly more concentrated portfolio, with a higher active share, and showing a more ruthless approach to cutting under-performing holdings.
‘Performance had picked up since the changes, with an NAV total return of 16.8% versus 16.2% from the S&P 500, but the fund faces competition from low cost ETF and tracker funds. We estimate that US focused ETFs had grown AuM from £16.8bn in 2013 to over £80bn in 2018. In our view this is likely to have been a key factor in both the board wanting to differentiate the fund’s mandate (whilst retaining the ‘core’ US exposure) and negotiate lower fees.'
