JPMorgan American has published results for the year ended 31 December 2015. In 2015, the US equity market, as measured by the S&P 500 total return Index in sterling terms, provided a return of 6.9%. In local currency terms, the market was more or less flat, and the gain to investors arose largely from the strength of the US dollar compared with sterling. Over the period, your Company’s net asset value (‘NAV’) underperformed the S&P 500 by just over 2%. The share price total return was -2.4%. JPMorgan American’s dividends for the year as a whole were 4.0p per share, an increase of 23.1% on 2014.
The Chairman says overall, the underperformance in the period was due to the manager’s long term preference for “value” stocks which led him not to invest in some of the strongest performers over the year, such as Amazon, which he considered to be expensive. In addition, he had one or two stock disappointments.
The manager says the large companies portfolio detracted from performance for the period under review. This underperformance was mainly driven by weak stock selection in information technology, consumer discretionary and telecom sectors. Good sector calls did however offset some of the negative impact from disappointing stock selection.
The company’s positioning in the information technology and consumer discretionary sectors had the largest negative impact on performance.
The best performing stocks over the year were led by a handful of mega cap leaders in Internet commerce: Facebook, Amazon, Netflix and Google (now renamed Alphabet), the now eponymous ‘FANG’ stocks. This group of stocks captured much of the attention and soared by an average of 80% during the year. To put that performance into perspective the S&P 500 ex-FANG average stock return ended at -2%. Despite their strong momentum characteristics JAM did not own them on valuation grounds. This underexposure to the FANG-stocks in the portfolio detracted from performance materially.
Among individual names, the lack of exposure to Amazon detracted from relative performance the most. Amazon reported accelerating growth globally with Amazon Prime being a key driver of retail growth and Amazon Web Services being a key driver of business growth. Their largest portfolio position was in Apple, which performed very well in the first half of the year but fell sharply in late August on concerns that slowing Chinese growth would impact sales of the iPhone. They remain positive on the longer term prospects for the Company despite the recent set back in performance.
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 and flat growth in TV and broadband. However, operating metrics remain on track and they maintain confidence in this company. In contrast, stock selection within industrials and healthcare proved beneficial. Solid stock selection in the energy space, the worst performing sector for the year, also aided relative performance.
Marathon Petroleum and Valero were two of the largest contributors to performance over the time period. Both companies are involved in refining crude oil into different petroleum products and benefitted from the continued decline in crude prices throughout the year. Refiners continue to look very attractive from a valuation and operating momentum standpoint. In the industrials sector, their overweight position in Northrop Grumman, a global aerospace and defence company, contributed the most to returns for the year. Northrop started 2015 on a positive note, providing profit guidance for 2015 that topped Wall Street expectations. Additionally, it continued this strength with solid earnings and reported improved guidance for the full year. Strong momentum and quality factors underpin our overweight position in this name. Within healthcare, their 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’s growth continues to be balanced with contributions from both commercial and government segments. Additionally they believe execution remains strong as does the company’s pipeline of future revenue growth. During the year senior management held merger talks with Cigna. This information caused Cigna to rally strongly during the summer period. JAM’s position in Cigna ensured that they benefitted from this rally though the company has also had a strong record of earnings per share as well as raising full year guidance for 2015.
JAM : JPMorgan American suffers from lack of FANG exposure