JPMorgan American bailed out by small caps – The year to 31st December 2017 was another positive one for investors in US equities, as the S&P 500 Index on a total return basis rose a further 21.5% for US investors, or 11.0% for UK investors once the effect of sterling’s appreciation against the US dollar is taken into account. JPMorgan American beat its benchmark in the 12 months to 31st December 2017, returning 13.1% in NAV terms. The discount widened marginally, from 3.1% to 4.5%, resulting in a total return to shareholders for the year of 11.2%. Dividend-wise they declared a total of 5.5p per share, compared with last year’s total of 5.0p.
The chairman points out that the outperformance came from the sub portfolio of US small cap stocks that is managed by Eytan Shapiro.
Manager’s report extracts
The manager says that the underperformance of the large cap portfolio was mainly driven by stock selection within the consumer staples, health care and information technology sectors. Within consumer staples, overweights in Walgreens Boots Alliance and CVS were among the largest detractors in the sector. Shares of both companies fell during the period amid fears that Amazon may enter the pharmaceutical industry, which would present a significant headwind for incumbent companies.
More positively, overweight exposure to the information technology stock Apple buoyed relative returns over the period driven by surprisingly positive results for its largest revenue generating product – the iPhone. Most investors expected a large drop in orders ahead of the launch of the 10th anniversary iPhone in the second half of the year, which failed to materialise. Apple’s shares remain attractively valued and the next iPhone upgrade cycle is expected to be the largest yet. Similarly, an overweight position in Microsoft boosted performance during the period as the stock rallied on the back of strong earnings, with revenues and earnings that came in better than expected. Among the highlights in its earnings announcement was the strong performance of its cloud computing offering, Azure.
Within information technology, a lack of exposure to Facebook and the specialist chip company NVIDIA detracted [Although having no Facebook will have been a boon in recent days]. NVIDIA’s shares rallied on the back of strong earnings results in the second quarter driven, in part, by high year-on-year growth in their datacentre and gaming segments. At the same time, an overweight position in Qualcomm featured among the portfolio’s largest detractors at the individual stock level as the company remained mired in legal disputes with Apple and the Federal Trade Commission.
Within the health care sector, overweight positions in the pharmaceutical stock Allergan and the biotech firms Celgene and Gilead Sciences weighed on performance, reflecting growth concerns regarding new products approvals and pricing. They still believe in their existing products and the future success of their pipeline.
On the other hand, the portfolio benefited from strong stock selection in the financials and consumer discretionary sectors. Here, a greater than benchmark exposure to fast food restaurant chain operator McDonalds added value as the firm reported better-than-expected sales results.
Furthermore, an overweight in Home Depot featured among the top contributors to returns as the stock outperformed in the fourth quarter driven by its strong execution and market share growth. The company announced improved revenue, profit and same-store sales growth figures, propelling its shares higher.
Another bright spot in performance over the period was within financials. Here, our exposure to MSCI and overweight in Citigroup buoyed relative returns. MSCI is benefiting from prior acquisitions which are enabling it to capture a broad range of growth opportunities. Shares of Citigroup outperformed during the period as investors cheered the prospects of a stronger capital return plan.
JAM : JPMorgan American bailed out by small caps