JPMorgan Mid Cap performs well in choppy waters – JPMorgan Mid Cap Invest Trust (JMF ) has released its full report for the year ended 30th June 2018.
Performance in choppy waters
The company’s NAV rose by 16.4% on a total return basis, compared with the benchmark the FTSE 250 Index excluding Investment Trusts, which delivered a total return of 11.2%. The discount to NAV narrowed over the year and as a result the company’s total return of the share price was +27.4%.
In his introductory statement to the report, the chairman Michael Hughes noted that the performance of the NAV was generated by positive stock selection by the investment managers, despite increasingly volatile investment conditions as a result of the ongoing uncertainties surrounding the UK’s exit from the European Union. He also pointed out that the unpopularity of the UK equity market had kept the share price at a discount to the NAV, despite it narrowing over the year.
The managers have, in fact, positioned the portfolio with Brexit in mind and have tilted towards overseas earners and away from companies where departing the European Union may have a negative impact.
Positive contributors the the portfolio’s outperformance included “large and long-term” holdings in Ashtead, Plus500, Electrocomponents and NMC Health.
On the negative side, the most significant detractor from relative performance was not owning Ocado. In addition, there were a number of take-overs in the FTSE 250 of companies which the company did not own.
Revenue and Dividends
Revenue earnings per share for the year to 30th June 2018 were 33.12 pence, a 7.3% increase on last year.
The receipt of special dividends remained a notable factor in the strength of the Company’s earnings, with just over 20% of the income received arising from the receipt of special dividends.
The Board has decided to increase the dividend this year by 7.7%.
Outlook; the investment managers of JPMorgan Mid Cap
“As we write this Annual Report in September 2018, a crystal ball would be a very useful accessory. It is (almost) without doubt that the UK will leave the EU within the next financial year, but despite the deadline set by Article 50 being less than seven months away, we still do not know what that exit will look like. The Bank of England assumes that the most likely outcome will be a gradual transition to new trading arrangements with the EU. The Prime Minister’s recent Chequers speech on Brexit signalled a very soft exit. However, in our view the increased political uncertainty post that speech and the currently stalled negotiations mean that the tail risk of the UK exiting without any deal at all has materially risen. Indeed Liam Fox, the International Trade Secretary, very recently put the chance of no trade deal at 60%.
All of this leads to a huge lack of clarity for both companies and consumers. Add to this the looming threat of global trade wars and it would be easy to become very pessimistic on the short term outlook. However, despite this, the IMF is forecasting UK GDP growth of 1.4% in 2018 and 1.5% in 2019. In the UK, the all-important PMI data (purchasing managers’ indices) are still indicating expansion, and lowered inflation expectations are positive for the consumer. While business confidence metrics have slipped, business investment remains low but positive, currently growing at 2-3%.
Recent history, and many years of experience in managing money, teaches us that, despite this backdrop, it is wrong to be too gloomy. The message we hear from companies within our portfolio remains positive. The forecast earnings growth for the companies we own is a striking 16%. As we have argued many times before, it is possible to find some high quality long term winners within the FTSE 250 Index. These are the companies, found in diverse sectors, which have embraced the data-driven modern world and adapted accordingly. These are the companies which are increasing productivity and will prove to be adept at positioning themselves for the future. We believe we have identified a number of these, and hold them as large positions within the portfolio. While the current political backdrop has led us to reduce gearing in the short term, we continue to back these investments and expect your Company to benefit from owning them.”
JMF : JPMorgan Mid Cap performs well in choppy waters