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Jupiter US Smaller extends run of outperformance

Lack of biotech hurts Jupiter US Smaller Companies

Jupiter US Smaller extends run of outperformance – Jupiter US Smaller Companies reports that its NAV increased by 4.5% in the twelve months to 30 June 2019. This compares to a fall of 1.1% for the benchmark, the sterling adjusted Russell 2000 Index. Since Robert Siddles was appointed as fund manager on 1 January 2001, the NAV per share has risen 407% compared to 280% for the benchmark.

790,018 shares were bought back but the discount still widened. The share price rose by 1.5%.

Extract from the manager’s report

Seven stocks contributed 1% or more to performance and five of these were top ten holdings. The largest contributor was The Ensign Group (nursing homes) whose strategy of buying and improving struggling nursing homes is working well. DMC Global (drill pipe perforation tools) benefited from further market share gains from its time-saving new products for the fracking industry. The position was sold towards the end of the period because competitors introduced their own new products and weakening oil prices threaten growth. America’s Car- Mart (financing and sale of used cars) gained from the end of easy credit. This meant that new car lenders became less competitive and the company saw the return of customers with better credit ratings. LiveRamp, previously Acxiom (online consumer identification services) rose after it sold its Acxiom Marketing Solutions business to Interpublic Group for the unexpectedly high price of $2.2bn, which was almost equal to the company’s then market capitalisation. The stock was sold because the remaining business operates in a highly competitive industry, is loss-making and does not fit the manager’s conservative investment approach. Ollie’s Bargain Outlet (off-price retailer) continued to exploit Amazon’s success and the favourable environment for retail liquidations. Genesee & Wyoming (short line railroads) appreciated on news that the company was investigating strategic options. It subsequently announced on 1 July its sale to private equity groups GIC Pte Ltd and Brookfield Infrastructure Partners LP. The stock was added to the portfolio in 2002 and has appreciated by more than eleven times since then.

As ever in small company investing, there were disappointments. Three stocks detracted from performance by more than one percent. The worst detractor was Lions Gate Entertainment A (film and television production and programme distribution) where the cost of expanding its international “over the top” distribution (i.e. internet delivery of programming) is proving to be more than we expected. GTT Communications (data connectivity services for enterprises) had a disappointing year as investors reacted badly to the lack of organic growth following the acquisition of London-based Interoute Communications. The size of the reaction was magnified by the company’s high level of debt. Since the year end, the Company’s holdings in Lions Gate Entertainment A and GTT Communications have been sold. American Vanguard (agri-chemicals) suffered from the US agricultural recession and unprecedented floods in the Midwest. The latter is probably a one- off event, and grain prices are beginning to pick up with a boost for farmers’ incomes. The company continues its strategy of acquiring and improving niche agri-chemical brands.

There were two takeovers in the period: Civitas Solutions (day care for adults with intellectual disabilities) was sold to private equity firm Centerbridge Partners LP at a 27% premium to the 30-day average share price. Following a strategic review REIS (commercial property database services) was acquired by Moody’s at a 32% premium.”

JUS : Jupiter US Smaller extends run of outperformance

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