JPMorgan US Smaller Companies published their results for the year ended 31 December 2014 yesterday. These show that the fund outperformed its benchmark, the Russell 2000 Index as the net asset value rose by 12.8% against 11.1% for the Index. Unfortunately however the discount widened out, leaving the return to shareholders at 5.6%.
In the manager’s statement attention is drawn to five holdings that added value and two which detracted from performance.
On the positive side, Marcus & Millichap, a commercial real estate brokerage firm, saw its share price rally during the year as its earnings exceeded expectations each quarter, and the company benefited from a fertile commercial real estate transaction environment (aided by persistently low interest rates), market share gains, and increased brand recognition from the initial public offering that has enabled the company to recruit productive new agents. HFF, a provider of commercial real estate and capital markets services, also reported strong earnings throughout the year. They say that, like Marcus & Millichap, HFF continues to generate strong transaction activity, with market share gains allowing the company to outperform solid industry growth trends. Moreover, they continue to like management’s thoughtful approach to the business, balancing investments for headcount growth and share gains against their commitment to capital return. Finally, online real-estate information provider Zillow enjoyed a strong year with robust growth in its core premier agent business and a rental market that is making significant progress. The company merged with key competitor Trulia during the year, after which they sold the holding. Within the materials & processing space Taminco was a strong contributor. Taminco produces alkylamines, which are a key ingredient for agricultural chemicals, animal feed additives, personal care and water treatment products. The company was acquired by Eastman Chemical before year end. Knight Transportation also added value. The trucking concern reported strong earnings and multiple expansion driven by a strong truckload pricing environment and increased productivity.
By contrast, the portfolio’s health care positioning disappointed and was the only sector to detract from relative performance over the period. Health care was the best performing sector in the Russell 2000 in 2014, with the biotechnology segment performing well. Their health care performance was hindered predominately by our lack of exposure to biotechnology names. Hanger, which they do hold, detracted during the period as the provider of orthotic and prosthetic patient-care services suffered some weakness in earnings during the period which drove its shares lower. The position in retail concern Quiksilver also detracted. Shares of Quiksilver declined after the designer and distributor of youth lifestyle apparel reported weak earnings, which dampened investors’ expectations of a turnaround. Sales across all of its major wholesale channels declined, leading to a shift in strategy by management that was not well received by the market.
JUSC : JPMorgan US Smaller boosted by US real estate holdings