Investment trust insider on JPMorgan US Smallers

Investment Trust Insider on Perpetual Income and Growth

Investment trust insider on JPMorgan US Smallers – James Carthew: barometer to grind out the US recovery

I recently got the chance to catch up with progress at JPMorgan US Smaller Companies (JUSC). I thought it would be interesting to see how the businesses in its portfolio are coping in the current environment. They represent USA Inc, in much the same way as the ‘mid-cap’ FTSE 250 stocks and companies in the upper end of the FTSE Small Cap index represent UK plc here.

JUSC invests in companies worth up to about $5bn. Last year, it did well, ending 2019 more than 5% ahead of its benchmark, the Russell 2000. More recently, over the past three months its net asset value (NAV) has fallen by about 25%. Its direct competitor, Jupiter US Smallers (JUS), is off about the same amount, as is the benchmark.

Ahead of the Covid-19 outbreak, the market had a clear preference for larger companies over smaller companies and growth stocks over cheaper, higher-yielding ‘value’ shares. Nothing has changed in this regard this year, if anything the situation has become more acute. The managers reckon that large cap growth beat small cap value by 23% over the first quarter of 2020.

Technology was by far the best sector to be exposed to in 2019. In the first quarter of this year it ranked third behind utilities and healthcare. This has been clear in the trust sector from the returns being generated by Polar Capital Technology (PCT) and Allianz Technology (ATT), which have bucked the general trend of the market and delivered positive returns over the past three months.

In part, this is being driven by demand for the sector’s products and services as a result of the shift to home working. However, investors are also conscious that economies are in recession and are likely to be depressed for some time. They are casting around for companies that are capable of growing even in a difficult economy and those that are little affected by lockdowns.

Unfortunately, healthcare and technology are the two sectors that JUSC is most underweight relative to its benchmark and… read more here