JPMorgan Mid Cap has announced its annual results for the year ended 30 June 2021, which show that it had a bumper year of outperformance that was derived from a number of sources. During the year, JMF says that its benchmark, the FTSE250, provided a total return of 36.7%, while JMF’s NAV total return for the year was more than ten percentage points ahead of this at 48.6%, while its share price total return was even higher at 65.1%.
The results show that this chunky margin of outperformance was accounted for by excellent stock selection and the tactical use of gearing by the investment managers. However, despite the impressive headline returns, the year under review was not straightforward – leadership in the FTSE 250 Index changed regularly as newsflow influenced an often rapidly evolving investment background. Most notable of these was, the ‘vaccine bounce’ in November and December that produced a marked change in sentiment towards certain sectors. Against this backdrop, JMF’s managers maintained their balanced approach and their key stock selections contributed significantly to the outperformance.
In addition to stock selection and tactical gearing, share repurchase and issuance activity also made a positive contribution to NAV returns at the margin. 296,589 shares were purchased and held in Treasury at an average discount of 15.6% between August and October 2020, while in June 2021 50,000 shares were sold from treasury at a premium of 1.26%. These transactions were all NAV enhancing for shareholders.
Finally, the share price discount to NAV at which the Company’s shares trade commenced the year at 11.5% but at the year end the discount had narrowed to 2.1%, which accounts for the superior share price total return of 65.1%.
Positive contributions came from long held positions
A number of JMF’s largest and long-held positions contributed to the strong performance during the year. Key among these were Future, Pets at Home, Watches of Switzerland and Games Workshop, all of which the managers comment delivered strong results and share price performance. In addition, JMF’s sizeable positions in OSB (formerly OneSavings Bank) and the housebuilder, Vistry, were notable contributors, having fallen precipitously at the onset of COVID-19.
Four of the largest detractors were from not owning M&A targets
On the negative side, four of the largest detractors from performance, relative to the benchmark, were all due to M&A (Mergers & Acquisitions) activity for stocks that JMF did not own. Specifically, John Laing, G4S, William Hill and Morrisons all succumbed to bids during the year, and all were large constituents of the trust’s index, which JMF did not hold. The managers highlight that there were many other bids during the year in the FTSE 250 space (for example, St Modwen, Aggreko, Gamesys) but JMF did not benefit from any of these as again they were not constituents of its portfolio. However, post the year end, JMF has seen its first bid in over 18 months, with an approach for Meggitt, a company JMF invested in at the start of the year.
Portfolio activity – selective on IPOs
The year was also a strong one for IPOs (Initial Public Offerings) and JMF participated in several of these, including Victorian Plumbing (online bathroom retailer), Alphawave IP (semi-conductor developer), Bytes (value-added tech reseller) and Moonpig (online card retailer). The managers say that they are excited by what they believe to be high quality and high growth new companies currently coming to the market. Other new additions to the portfolio over the year included the DIY retailer Wickes through its demerger from Travis Perkins, and three companies exposed to the much maligned consumer leisure sector – Rank (a casino operator), Restaurant Group (a group of restaurants) and Mitchells and Butlers (a pubs and bars operator). Exits from the portfolio included Weir and Kingfisher, on promotion to the FTSE 100, and Sabre Insurance, Telecom Plus and Beazley, on weaker than expected operational performance.