Dramatic discount narrowing leads to bumper return for JPMorgan Global Growth & Income

Dramatic discount narrowing leads to bumper return for JPMorgan Global Growth & Income – JPMorgan Global Growth & Income reports that, for the year ended 30 June 2017, its NAV total return was 29.0%, which compares well with the 22.2% return posted by the MSCI AC World Index. in an analysis of the contribution of different elements to the fund’s return, Asset allocation is said to have cost them 0.1% while stock selection made them 7.2%. For shareholders, a dramatic re-rating of the fund gave them a return of 51.2%.

The fund adopted a revised distribution policy in July 2016 under which it intends to pay dividends totalling at least 4% of the NAV (as at the end of the preceding financial year). In relation to the year commencing 1st July 2017, they intend to pay dividends totalling 12.16p by way of four equal distributions. That is 24.1% up on the previous year.

The company is sticking with its passive currency hedging strategy (implemented in late 2008). This is a risk reduction measure, designed to eliminate most of the differences between the portfolio’s currency exposure and that of the benchmark. As a result the returns derived from, and the portfolio’s exposure to currencies may differ materially from that of the competition, who generally do not undertake such a strategy.

Jeroen Huysinga, the manager, had this to say about his portfolio: “During the 12 months to June 2017 your Company significantly outperformed the benchmark. Given the reversal in market leadership described above, the environment was constructive for our investment strategy which was pro-cyclically positioned with a bias towards higher beta (more volatile) stocks. Many of the investments that had previously detracted from performance rebounded strongly, notably our holdings in banks and basic industries. We held on to, or added to, a number of stocks that had previously lagged behind, convinced by compelling valuations underpinned by strong long-term insights from our experienced team of research analysts. Outokumpu, for example, a Finnish stainless steel company undergoing significant restructuring led by an impressive new management team, was overlooked by the market in previous years. Despite the shares rising 88% over the period, we still believe the comprehensive turnaround at Outokumpu is not yet properly reflected in the stock price. Our holdings in a number of US banks proved to be very rewarding, including Morgan Stanley and Bank of America which each saw their share prices gain more than 70%. Again, marking a reversal of trends in previous periods, our underweight position in utilities was also rewarded as these performed poorly. 

Other companies which contributed to performance included Suzuki, Royal Caribbean Cruises and UnitedHealth Group, the US healthcare insurance provider. Last year I commented on our addition of Suzuki to the portfolio given the auto company’s exposure to demand in India. We have recently sold the holding in the company which saw a nearly 100% return over the period. 

Our low exposure to technology detracted from performance and this was particularly the case in the first half of 2017. We were underweight the eponymous ‘FAANG’ stocks (Facebook, Amazon, Apple, Netflix, Google) – only owning Google. Clearly these are excellent businesses but, in aggregate, we consider them to be expensive, to be ‘crowded’ by a surge in investors and to represent a form of momentum investing which in our experience frequently leads to derating and disappointment.”

JPGI : Dramatic discount narrowing leads to bumper return for JPMorgan Global Growth & Income

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