JPMorgan European shake up planned

JPMorgan European shake up planned – The board of JPMorgan European Investment Trust has concluded its review of the company and its strategy. This included considering various options to improve marketability and to broaden the appeal of the company as well as to improve liquidity and to narrow the discount. The board believes there remains a strong case for investment in Europe, with the broad universe of European equities providing quality diversification for UK investors. However, the board thinks that the existing dual share class structure (JPMorgan European Income – JETI and JPMorgan European Growth – JETG) is unnecessarily complex and potentially presents a hurdle to those looking to invest. The board believes that a single share class with a clearly defined investment process would enable a cogent investment approach and increase the company’s appeal.

Share class consolidation

The board plans to consolidate the income shares and growth shares into a single class of ordinary shares. The investment objective and investment policy would be the same as that of the growth shares (this choice was based on the board’s confidence in the manager’s strength and depth of team, as well as its track record – the company has outperformed its benchmark over 5 and 10 years).

The consolidation creates a company with net assets of approximately £500m and should ensure the critical mass needed to attract investors. It is also expected that the increased size will have a beneficial impact on liquidity, which is expected to have an additional positive impact on the discount. Conditional on shareholders approving the consolidation, the board also intends to introduce the following features which it believes will further appeal to investors:

1. Introduction of an enhanced income strategy to target a dividend of 4% p.a. (based on the NAV at the end of the preceding financial year) – this is a similar idea to that adopted by other JPMorgan trusts recently;
2. Adoption of an active discount management policy with a commitment to keep any discount to single digit levels, in normal market conditions;
3. Introduction of a performance-related tender offer – if NAV total return performance is behind the benchmark (the MSCI Europe ex UK Index (total return) in sterling terms) over a five year period from consolidation, a tender offer will be made for up to 25% of the outstanding share capital at NAV less costs;
4. Lower management fees – a reduced fee calculated on net assets of 0.55% p.a. up to £400m, 0.4% p.a. thereafter;
5. Reduction of the notice period to 6 months (from 12 months at present); and
6. Change of the company’s name to JPMorgan European Growth & Income plc, with the new shares trading under a new ticker, JEGI.

Shareholders representing material interests in both the income shares and growth shares have indicated their support for these proposals. The company expects to publish a circular and notice of meeting(s) in connection with the consolidation in due course and aims, subject to approval of the shareholders, to conclude the consolidation and to introduce the above features by late 2021/early 2022.

[It is only a few weeks ago that Peter Hewitt, manager of BMO Managed Portfolio, was praising the dual share class structure as used by JPMorgan European on our weekly show. JPMorgan has been shifting its income-focused trusts and some of its growth-focused trusts to this enhanced income model, however. It was perhaps inevitable that JPMorgan European would be asked to go the same way. As we have discussed on a few occasions recently, generating income by investing in high yielding shares has tended to produce lower total returns for investors than converting capital gains from growth-focused portfolios into income. That is simply a product of ‘growth’ outperforming ‘value’. The bounce in value stocks that started last November was benefitting the income portfolio, however, it is on pause again as markets are nervous. To some extent, this feels to us like a bet by the board/manager that growth will continue to outperform.]