JPMorgan European has announced results for the year ended 31 March 2015. The report says that both the growth and income pool outperformed their benchmark (MSCI Europe ex UK) over the year with the Growth shares producing a total return of +14.5% and the Income shares a total return of +15.4%, compared with 7.0% for the Index.
The Board are suggesting that the number of opportunities to convert between the income and growth pools be cut from two to one (in March each year) and is asking shareholders to approve this change – this is to protect income shareholders following the shift to paying quarterly dividends (because the payments don’t necessarily match the income flows in each quarter).
The dividend on the growth shares was maintained at 6.7p. The dividend on the income shares was maintained at 4.75p. The unchanged dividends reflect stable income received in the year relative to the previous accounting period.
The report says the biggest single contributor to the outperformance of the growth portfolio was Merck, the German healthcare company, which has seen analysts’ earnings estimates rise steadily helped in particular by the potential synergies from its proposed acquisition of Sigma Aldrich, a US life sciences company. Elsewhere in healthcare the fund’s position in Novartis contributed positively to performance. The market has started to appreciate, after a series of deals with GlaxoSmithKline, the company’s progression from a diversified healthcare business towards one focused on respiratory, oncology, and eye care. Away from the big benchmark names the portfolio has benefitted from its holdings in midcap companies such as Duerr, which specialises in paint shops for the auto industry, and Kuka which is a leading supplier of robotics. Both stocks have been helped by the growth in the auto sector and both have recently made accretive acquisitions. Other successful midcap investments include Euronext, the stock exchange and Forbo which is a Swiss flooring company. The sharp drop in the oil price during the year under review allowed the fund to benefit, relative to its benchmark, by not owning many of the energy names within the benchmark, particularly those in the service sector such as the offshore driller Transocean which fell sharply.
Being overweight Norway, Portugal and the utility sector, and underweight Switzerland and the healthcare sector took about 1.6% off the performance of the income portfolio. Stock selection added 4.6% however. Notable successes included Bpost, the recently privatised Belgian postal system which has benefitted from growth in parcel volumes and tight cost control, generates significant free cash flow and has been returning part of this to shareholders through an increasing dividend. Another significant outperformer in the portfolio was BE Semiconductor which makes semiconductor assembly equipment. The company has enjoyed faster than anticipated growth driven by the proliferation of mobile applications as well as increasingly complex requirements in the auto sector. The shares rose sharply during the year under review and in February the company announced a large dividend increase. Part of the income portfolio’s outperformance came from avoiding companies that performed badly. Two sectors stand out in this regard; energy and banks. Within the energy sector they avoided some of the stocks hit most by the decline in the oil price, for example the Norwegian deep water driller Seadrill which fell sharply on concerns about falling day rates for its equipment. Within the banks sector the market remained wary of companies where the dividend payout was felt to be unsustainable, such as Banco Santander in Spain. Avoiding the big underperformers remains an important component of performance.
JETG / JETI : JPMorgan European benefits from strong stock selection