Jupiter US Smaller Companies underperformed its benchmark over the year to the end of June 2015 – generating an uplift in net assets of 5.5% against a 14.3% return on the Russell 2000 Index. The main reasons were the absence of biotechnology stocks in the portfolio and falls in the values of the fund’s investments in oil related companies. Unfortunately for shareholders, the discount widened as well (from 2.7% to 8.6%), leaving them with a 0.9% fall in the value of their investment.
The manager says there were some strong stock contributions to performance. The best of these came from INTL FC Stone (commodity consultancy and trading), which experienced a recovery as the volatility of commodity prices increased. Installed Building Products (home insulation installation) saw good growth as a result of gains in market share, whereas, Alere (patient diagnostics and monitoring) now under new management, continued the turnaround begun in 2012. American Vanguard (crop chemicals producer) rallied on hopes of a recovery in the farm sector and America’s Car-Mart (which sells and finances used cars) saw a pick-up in growth as a result of lessening competition from new car lenders.
Poor contributors were primarily oil and gas stocks, led by Goodrich Petroleum, Resolute Energy and Rex Energy. Shale plays such as these prosper when oil prices are high because of the outstanding return on investment in these circumstances, but when oil prices are lower they suffer. This was the case last year. In addition Conn’s (retailer of consumer durables that provides its own credit) and Genesee & Wyoming (short line rails) were also weak. Conn’s was hit by high credit losses as it expanded into new regions. The holding was increased in December, once the company’s board had taken firm action, and the portfolio benefited from the subsequent rebound. Genesee and Wyoming suffered from falling car loads volumes caused by weakness in the energy, coal and metals industries.
There were two bids this year: Bally Technologies (gaming equipment and software) was acquired by Scientific Games and HCC Insurance (specialised insurance underwriter) received an agreed bid from Tokio Marine.
JUS : Lack of biotech hurts Jupiter US Smaller Companies