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Focus shifts to covid-19 impact following excellent interim results from JPMorgan Smaller Companies

JPMorgan Smaller Companies' second consecutive year of outperformance

JPMorgan Smaller Companies (JMI) invests in the UK smaller companies sector. The company has this evening released interim results to 31 January 2020. Mirroring many of its peers, the company’s shares have been hit hard as capital has moved away from a sector that had erstwhile been the main beneficiary from the political developments that took place in the UK towards the end of 2019.

Having at one shed about 55% of their value since the beginning of March, JMI’s shares have recovered some ground over the past few days (they were up 13% today).

The second half of 2019 was very good for UK small cap with JMI at the forefront

Over the six-months to end-January, JMI delivered a total NAV return of of 24.1%, significantly outperformed the benchmark, the Numis Small Cap plus AIM (ex Investment Companies) Index in the process. Total return to shareholders was 31.9%.

Outlook from managers Georgina Brittain and Katen Patel

“Post the election and parliamentary approval of a withdrawal agreement from the EU, we believe the political outlook for the UK is clearer than it has been for several years. We now have a pro growth, pro investment Government in place and have already seen Government spending accelerating at its fastest pace in 15 years. The recent Budget confirmed this. Low interest rates, low inflation and very low unemployment all add to the more positive picture.

There are two caveats. First, this positive view is dependent on the outcome of the EU withdrawal negotiations this year, and also the progress of trade talks with the USA, Japan and other countries. Second, and clearly dominant, is the threat to the global economy from the coronavirus, COVID-19. If this pandemic is contained in a timely manner then, given the extraordinary measures of support we have seen from the Government, we would expect a very strong bounce back in markets, and the UK, and in particular the harder hit smaller companies, should participate. If, however, the rest of the world does not recover from the COVID-19 impact at the rate that China appears to have, then all markets, including the UK, will continue to struggle.

We repositioned the portfolio to benefit from the more positive outlook in the UK and at the end of the half year on 31st January 2020, we were 9.8% geared. As the impact of COVID-19 began to take effect, we have reduced our gearing level, in order to provide ourselves with firepower when we believe it is time to add to our holdings.  Current valuations were supportive prior to the recent very sharp decline in stockmarkets, but clearly it is difficult if not impossible to foresee where earnings levels will turn out for this year. When the current situation, and companies’ earnings, normalise, we believe valuation levels will look very attractive, but the timing is highly uncertain.” 

JMI: Focus shifts to covid-19 impact following excellent interim results from JPMorgan Smaller Companies

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