Over the year ended 30 June 2016, the sterling return of the MSCI All Countries World Index was 13.3% JPMorgan Global Growth & Income’s total return on net assets was lower than the benchmark, at 8.2%. There was a sharp widening of the discount from 6.9% at the start of the year to 14.4%, notwithstanding an active policy of buying back shares. As a result the total return to shareholders for the year was -0.6%.
The Directors therefore intend to pay the following dividends:
- a final dividend for the financial year to 30th June 2016 of 3.2p per share payable on 25th November 2016 to shareholders on the register at the close of business on 4th November 2016, subject to shareholders’ approval at the forthcoming AGM in November 2016;
- a first interim dividend of 2.2p per share for the financial year to 30th June 2017 payable in January 2017;
- a second interim dividend of 2.2p per share for the financial year to 30th June 2017 payable in April 2017; and,
- a third interim dividend of 2.2p per share for the financial year to 30th June 2017 payable in July 2017.
Hence the four dividends will amount to 9.8p in total, which represents a yield of 4.04% of the net asset value at the end of the financial year.
The manager says investors continued to seek shelter in ‘safe-haven’ assets such as consumer and healthcare giants; Unilever, SABMiller, Kellogg and Johnson & Johnson which outperformed companies more sensitive to global growth. The autos and banks sectors were the worst performers.
Their weakest areas of stock selection centred around banks, property, basic industries and healthcare. In banks our positions in Mitsubishi UFJ Financial Group and Intesa SanPaola were among the stocks to detract. They initiated a position in Intesa Sanpaolo, an Italian retail and commercial bank which is in a good position to grow organically within a troubled competitive landscape. Many Italian banks are having to deal with merger and acquisition, managerial changes and are hamstrung with weak balance sheets. This gives Intesa an excellent chance to grow volumes and increase market share particularly in loans, deposits and asset management. The company is one of the most profitable banks in Europe (making it relatively robust in the face of any credit cycle) and yet it trades at a material discount to its book value, due to concerns about the European economy and the bad debts in the Italian banking system. There are particular concerns around the possibility of Intesa having to act as a white knight by bailing out weaker players – Banca Monte di Paschi has been a case in point. Intesa remains unlikely to contribute but even if it does (despite vocal resistance from the CEO); they believe that this is more than reflected in the valuation already. This is a classic case of ‘good house in a bad neighbourhood’ – a theme which has represented a very accretive aspect of our stock selection process over the years.
In healthcare holdings in biopharmaceutical companies with strong long-term earnings growth potential, including Vertex and Allergan, lagged more defensive names. Many of the companies that underperformed did so despite a distinct lack of company-specific news and no changes to their fundamental outlook. Shares in Vertex, the American healthcare company, lost around a quarter of their value, driven partly by a modest adjustment in expectations for one of the company’s new drugs, but mostly by the severe correction in the biotech sector as a whole. They continue to believe the stock is undervalued as the market leader in the treatment of cystic fibrosis.
In basic industries a holding in First Quantum, the copper producer, saw its shares fall 84%. Originally, they had thought that there was a company-specific driver of value which could be unlocked by a strong management team. In reality, however, the commodity cycle has overwhelmed this thesis and the weakness of the balance sheet this has produced has also limited management options. They exited the position earlier this year.
Stock selection in media, retail and energy was positive for performance. This included a holding in Columbia Pipeline Group, the US pipeline operator, as TransCanada announced an all-cash acquisition of the company for USD 10.2 billion in a move that will create one of North America’s largest regulated natural gas transmission businesses. The deal will give TransCanada access to miles of existing pipeline after its attempts to build new oil pipelines failed amid environmental concerns and a block from the US government. The acquisition is expected to be finalised in the second half of 2016, subject to regulatory approval.
Since the year-end, the portfolio has strongly outperformed the benchmark, with our positions in a number of more cyclical companies, which underperformed in previous months, driving this recovery.
JPGI : JPMorgan Global Growth & Income suffers as investors seek safe havens