JPMorgan US Smaller Companies reported an increase of 20.5% in the Company’s net asset value during the six months’ period to 30th June 2016. This represented an outperformance of the benchmark index, the Russell 2000 index in sterling terms, which rose 12.6%. The NAV return was not reflected in the share price which increased less than 2.0%. The discount as at 30th June 2016 was distorted further by the sharp fall in sterling against the US dollar following the Brexit vote on 23rd June, which had a positive impact on the NAV as none of the US dollar assets are hedged.
The portfolio benefited from strong stock selection within healthcare and producer durables. Within healthcare, IDEXX Laboratories was the top contributor in the sector. The company, which provides diagnostic testing products and reference lab services to veterinary practices worldwide, reported sales, operating margin and earnings per share above expectations driven by better than expected organic growth. They continue to hold it as they believe the company is well positioned to gain further share in the attractive companion animal market.
In the producer durables sector, their position in Toro contributed to returns. Shares of Toro surged during the first quarter as the company reported on positive earnings and gross margins. The management’s tone on guidance was upbeat across its various segments (landscape contractor, golf and snow and ice control equipment). Strong pre-season bookings in the landscape contractor space was a key upside surprise in the first quarter which indicated that the customer segment felt optimistic as well, and its rental segment continued to be strong.
In contrast, underweights in the utilities sector as well as weak stock selection in the financial services sector partially offset the positive contribution to returns. In the financial services sector, a modest position in Greenhill & Co, an investment bank, weighed on returns. While the company reported better than expected earnings, sentiment towards independent boutique advisors has soured given macro headwinds, including higher stock market volatility, tighter credit markets and political uncertainty from the US election and Brexit, which will likely pressure merger and acquisition transactions in the intermediate term.
JUSC : JPMorgan US Smaller let down by widening discount