JPMorgan American just edged ahead of its benchmark in H1 2015 in what turned out to be a flat period for the US market – JPMorgan American’s net asset value return was 0.5% as compared to a 0.2% return on the S&P500 Index.
The manager says that the portfolio benefitted from strong stock selection in the health care and industrials sectors. Within health care, overweight positions in both Anthem and Cigna added value. The health benefits company Anthem, formerly known as WellPoint, rallied early in the year after it announced it has closed the acquisition of Simply Healthcare, a Florida managed care operator focused on the Medicaid and Medicare Advantage markets. The company also issued robust earnings in May that heralded strong membership numbers. The company’s growth continues to be balanced with contributions from both the commercial and government segments. Additionally execution remains strong as does the company’s pipeline of future revenue growth. Most recently, they have held merger talks with Cigna. This information caused Cigna to rally strongly during the latter part of the period. Their position in Cigna ensured that JPMorgan American benefitted from this rally though the company has also had a strong record of earnings per share (EPS) beats in 2014 and running into 2015 as well as raising full year guidance for 2015, which was small but encouraging so early in the year.
In the industrials sector, an overweight position in Northrop also contributed. Northrop started 2015 on a positive note, providing profit guidance for 2015 that topped Wall Street expectations with the defence contractor reporting strong 4Q2014 earnings. Additionally, it continued this strength with 1Q2015 earnings, with sales slightly better in all segments driving 2% top line growth and reported improved guidance for the full year and higher-than-expected pension income. A lack of exposure to Union Pacific also contributed in the sector. Earnings showed that the decline in coal volumes, which is a major part of Union Pacific’s revenues, was worse than anticipated as intermodal volumes were challenged by a strike in West Coast Ports. Additionally, Union Pacific also disappointed on cost control.
On the positive side in technology, a large overweight in Apple helped the portfolio performance. Apple reported very strong Q4 and Q1 earnings results due to the immense popularity of their latest iPhone models with the larger screens and faster processors. Apple has reaccelerated its earnings growth and has also expanded its share repurchase and dividend programs. In contrast, overall stock selection in the information technology and consumer discretionary positioning disappointed. Their information technology performance was hindered by overweight positions in SanDisk and Hewlett-Packard. SanDisk detracted from performance after the company guided revenues lower than expected primarily due to product qualification delays, lower than expected sales of enterprise products and lower pricing in some areas of the business. Hewlett-Packard disappointed as structural problems undermined performance as declining PC, printer and server demand pushed shares lower. Also in the sector, an overweight position in KLA-Tencor detracted from performance after guiding lower for the full year 2015. The company lowered guidance believing that semi-cap equipment orders are being pushed out into the 2H2015 with potential to slip into 2016. They say they remain overweight the company as we believe that leading edge technology (14nm) and more difficult implementations should still benefit KLA-Tencor in the longer-term.
In the telecom services sector, an overweight position in CenturyLink was the largest detractor. The integrated communications company posted weak results early in the year with total revenue falling year-on-year. The decline in revenue was driven by weakness in data centre hosting revenue with flat growth in TV and broadband also hurting. Operating metrics though remain on track and they maintain confidence in the name.
JAM : JPMorgan American edges ahead of S&P500