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JPMorgan US Smaller Companies beats benchmark helped by stocks such as Grubhub

JPMorgan US Smaller Companies beats benchmark helped by stocks such as Grubhub – JPMorgan US Smaller Companies says that, in 2017, its share price rose by 7.7% and the NAV increased 6.3%. Good stock selection has resulted in outperformance of its benchmark index, the Russell 2000 which rose by 4.5% in sterling terms. The board is recommending a dividend of 2.5p in respect of the financial year ended 31st December 2017, JUSC used to have a revenue deficit but this has now been eliminated as earnings have grown.

what went up

Stock selection in the financial services and materials & processing sectors was beneficial. In the financial services sector, banks, insurers and capital market companies worked well as these profited from Trump’s corporate tax reform. Eaton Vance was among the largest contributors to the fund’s returns. Eaton Vance is the oldest investment management firm in the US. Even though its earnings results were slightly below expectations, best-in-class organic growth rates and inflows into every asset class helped the stock to move higher. The company’s management is optimistic around its growth initiatives and flows continue to be solid. Furthermore, Eaton Vance should be a big beneficiary of the corporate tax reform which will further provide a tailwind for earnings.

Within materials & processing, an overweight position in Cabot Microelectronics was among the largest contributors to returns. Cabot Microelectronics, a leading global supplier of high-performance polishing slurries and pads was a solid performer driven by strong fourth quarter earnings results in which new products drove revenue and EPS growth. Management also provided an upbeat view on the sustainability of current strong top line trends into the next fiscal year, as well as a guidance for continued margin expansion, which was greeted positively by investors.

On a standalone basis, an investment in Grubhub, the leading online and mobile platform for restaurant pick-up and delivery orders in the US, added the most value. The stock was a strong performer in Q4 on the back of solid Q3 2017 earnings results that showed better than expected organic customer growth and continued improvement in unit economics. With a rapidly scaling delivery business, accelerated ad spend driving strong diner and restaurant partner growth as well as a step function in scale from the recently announced Eat24 acquisition, 2017 has been a productive year for Grubhub in being the long term winner in the large and growing online food ordering/delivery market.

what went down

In contrast, stock selection in the consumer discretionary and healthcare sectors weighed on relative returns. E.W. Scripps, the owner of broadcast TV stations and national digital assets, underperformed after missing their Q3 guidance. In addition, the company wrote down a digital acquisition they made only a short time ago in April 2016, which further calls into question their acquisition strategy, and their recent purchase of Katz Broadcasting. E.W. Scripps is also undergoing a change in management with an internal CEO promotion, and a change in their CFO (also an internal candidate).

Within healthcare, lack of exposure to several names, including Nektar Therapeutics, hurt performance. The biopharmaceutical company that develops new drug candidates by applying its proprietary technology and supplying the technology to pharmaceutical companies, provided positive phase 2 data related to their drug treating melanoma during the period. The data highlighted compelling patient response rates as well as an encouraging safety profile. The FDA also provided an unexpected regulatory update on Nektar’s non-addictive pain medication and indicated that they will likely not need to run additional trials. This ultimately moves the filing timeline ahead and the news was well received by the market.

Among individual names, an overweight in the consumer discretionary name Papa John’s and exposure to the consumer staples name Spectrum Brands were among the largest detractors. Papa John’s, a company that operates and franchises pizza delivery and carry-out locations throughout the world, underperformed mainly in the fourth quarter as they lowered FY 2017 EPS guidance, implying negative EPS growth in Q4. The restaurant and pizza category was hit as a whole, and the company additionally blamed poor sales on their affiliation with the NFL, which has seen viewership declines. They still believe the company has a strong brand, an attractive business model, and a long runway for growth and therefore took the opportunity to add to the position during the quarter on this pullback. Spectrum Brands, a global and diversified consumer products company, slightly detracted during the year. They do however think that they have strong value brands that compete effectively in markets dominated by a small number of higher name brand products.

JUSC : JPMorgan US Smaller Companies beats benchmark helped by stocks such as Grubhub

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