JPMorgan Brazil published its results covering the year that ended on 30 April 2015 last night. During the year the company’s return on net assets was -14.6% and the return to shareholders was -11.9%, reflecting a narrowing of the discount from 9.1% to 6.4%. JPMorgan Brazil underperformed its benchmark, the MSCI Brazil 10/40 Index (in sterling terms), which returned -9.5%.
The Chairman’s statement makes the point that most of the fall in the company’s net asset value since it was launched is the consequence of the fall in the value of the Brazilian Real.
In the light of the reduced size of the fund, the Board has agreed with JPMorgan that with effect from 1st May 2015, they will reduce their management fee to the extent necessary to ensure that the ongoing charges ratio does not exceed 2%.
Regretfully, the Manager doesn’t give much stock specific performance attribution but they say that, in general, an underweight allocation to consumer staples detracted from their performance relative to the benchmark index at the sector level, in particular being underweight Ambev (which became a bigger part of the index during the year).
Mid and small cap industrials exposure was also detrimental for relative performance. While the currency weakness added to their exports the domestic economy was significantly weaker than they expected and that outweighed the export improvement. In particular, an overweight position in Mills weighed on relative returns as the construction and industrial maintenance company was hurt by downward earnings revisions and the exposure of its clients to the Petrobras scandal.
Likewise mid and small cap. information technology stocks turned out to be more vulnerable to a government’s proposal to raise labour taxes that hurts disproportionally labour intensive companies. However, their underweight position in materials, reflecting their negative view of commodity cyclical stocks, was positive for relative returns.
JPB : JPMorgan to trim fees to reflect shrinkage of Brazilian fund