JPMorgan Smaller Companies

After an extraordinary 2019, JMI has seen its discount once more slip, offering a potentially attractive entry point…

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by JPMorgan Smaller Companies. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

JPMorgan Smaller Companies

JPMorgan Smaller Companies Investment Trust (JMI) offers investors exposure to some of the fastest-growing, most innovative smaller companies in the UK. The managers look for companies whose performance is driven by structural factors, rather than relying on the performance of the overall UK economy.

Georgina Brittain and Katen Patel are at the helm of the trust, utilising a bottom-up stock-picking approach to take advantage of what they see as the inefficiencies inherent in the small-cap market. In particular, the managers are looking for companies that exhibit quality, momentum and value characteristics, creating a diverse portfolio of 85 holdings.

Returns over the long term have been impressive for the trust, which has outperformed the benchmark Numis SC Plus AIM ex IT in eight of the past ten calendar years on an NAV TR basis. However, the most startling period of performance has been over the past calendar year. Over 2019, JMI delivered an NAV total return of 49.8%, benefitting from some of the uncertainty surrounding the UK’s political situation subsiding.

This dramatically improved sentiment towards the trust and saw the discount narrow from double digits to around NAV, meaning a share price return of c. 70% (the strongest performer in the entire equity investment trust universe). However, the discount has since slipped out again and the shares currently trade at a discount of 4.9%.


Kepler View

JMI has long been one of the standout trusts within the UK smaller companies sector. The managers mitigate the risks typically associated with smaller companies through constructing a well-diversified portfolio of stocks that have long-term structural drivers. This is supported through the distinctive investment process, which focuses on stock characteristics (principally value, quality and momentum).

Last year saw a dramatic turnaround in sentiment towards JMI. Having consistently traded at a double-digit discount, the landslide victory from the Conservatives saw a number of companies in the portfolio re-rate and the discount narrow rapidly. Aided by relatively high levels of gearing, the trust ended 2019 as the best performer in price terms across the entire investment trust universe.

Despite the strong year, the discount has started to slip back again, and currently stands at c. 7%. This compares to the weighted average discount of 3.9% in the AIC UK Smaller Companies sector, and offers a potentially attractive entry point into the trust.

BULL
BEAR
Discount has widened once more, despite exceptional performance
High levels of gearing can see the trust amplify volatility, as we saw in Q4 of 2018
Strong track record over the long term relative to the benchmark and peers
Dividends are variable so the trust is unlikely to appeal to income-seekers
Highly experienced fund manager with two decades’ experience on the trust


William Sobczak
William joined Kepler Partners in February 2018 as an investment trust analyst. Prior to joining, William graduated from the University of Western Australia, with a BSc in Psychology.

Fund History

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