Late on Friday, JPMorgan Overseas published its final results for the year ended 30 June 2012. The total return on net assets for the year was 11.8%, ahead of the total return of 9.5% for the benchmark, the MSCI All Country World Index (in sterling terms). The total return to shareholders was 10.3%. The final dividend was upped from 15p to 16p. The shares are to be split so that for every one share you hold now you will end up with five new shares. The share price is close to £10 so a split will make it easier to invest smaller amounts of money in savings schemes or dividend reinvestments.
The manager’s report says JPMorgan Overseas’ outperformance was driven by investments across a wide range of sectors and regions including US healthcare, global banks and European industrials.
In healthcare, exposure to Health Maintenance Organisations (HMOs) such as Humana and UnitedHealth Group in the US has been very positive. With strong enrolment growth in government programmes (Obamacare), vast cash flow generation, and clear evidence of consolidation through acquisitions, they continue to have high conviction in both of these stocks. Elsewhere in the sector the fund has benefited from investments in Boston Scientific and Shire Pharmaceutical. Boston, a medical equipment company, is an undervalued turnaround story with an interesting pipeline of new products which is driving an acceleration in revenues and a sharp, and generally unanticipated, expansion in margins. Shire is a specialist pharmaceutical company with extremely attractive growth prospects, one of the strongest balance sheets among its peers and an outstanding management team.
Positive performance in banks came from investments in Mitsubishi UFJ Financial Group and Barclays. MUFG, Japan’s largest bank, is benefiting operationally from a reasonably benign domestic business environment and a growing contribution from overseas activities. Capital strength is high with buybacks having been announced both in 2014 and 2015. As the group steps up sales of strategic share holdings, capital returns may further increase. Barclays is clearly changing its spots. In the same way as UBS and Morgan Stanley before it, Barclays’ ambitions to be a top player across all aspects of investment banking have been abandoned, and the focus is now very much on core retail and commercial banking. With new executive management and a new chairman the focus on costs is intense and the path to higher returns and valuation is reasonably clear.
In Industrials, their holding in Electrolux, the Swedish appliance company, is benefiting from the significant restructuring of its industrial footprint undertaken both in Europe and the US over recent years. As Europe recovers and as housing-related activity in the US continues to normalise, the potential for operational gearing into these trends is significant.
First Quantum (copper producer) was a significant detractor last year. Despite very visible growth prospects, excellent management and our strong longer-term preference for copper relative to most other metals, a 20% decline in the commodity took its toll on the stock price. Having fortified its balance sheet in May, First Quantum remains very well positioned, and extremely cheap, in our scenario of an eventual bottoming-out in the copper price. Outokumpu (stainless steel) was also one of the worst performers last year. Despite a large decline in the price of nickel (which informs the price of stainless steel) and an escalation of import pressure from China, they say they have been happy to add to this investment following significant restructuring of its core European operations, cyclical recovery and our belief that Chinese exports will decelerate.
JMO : JPMorgan Overseas proposes stock split