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Continued recovery sees JPMorgan US Smaller Companies outperform

Continued recovery sees JPMorgan US Smaller Companies outperform – JPMorgan US Smaller Companies (JUSC) has published its final results for the year to 31 December 2021. The company’s total return on net assets over the year was +17.7% which compares favourably with the increase of 15.7% in its benchmark, the Russell 2000 index in sterling terms. Share price performance was also strong, rising by 16.5% as the shares remained at a small premium to net asset value (NAV) as at the end of the year.

The company said this year has seen a continued recovery in markets from the sell-off in early 2020 as sentiment improved and economic activity picked up. The company’s benchmark, whilst still returning a healthy positive return for the 12 months, is down from its highs of November 2021 as concerns around inflation and the Omicron variant started to take hold in the last few weeks of 2021. 

Dividend

The impact of the pandemic on the dividends received from JUSC’s portfolio remained relatively muted and the board can therefore recommend a dividend of 2.5p in respect of the financial year ended 31st December 2021. Subject to shareholders’ approval at the Annual General Meeting (AGM), this dividend will be paid on 20th May 2022 to shareholders on the register at the close of business on 19th April 2022.

Fee change

With effect from 1st January 2022, the annual investment management fee, previously 90bps on the first £100m of gross assets (excluding any holding in the JPM Liquidity Fund) and 75bps on gross assets in excess of £100m of assets (excluding any holding in the JPM Liquidity Fund) changed to the following:

•        A basic management fee of 70 bps per annum on all gross assets.

•        The definition of assets and the exclusions on investments in J.P. Morgan managed funds will remain unchanged from the current arrangements and the fee will continue to be calculated and paid monthly in arrears.

Both the board and JPMF worked together constructively in agreeing this new investment management fee arrangement. Whilst determining the appropriate level of fees took into account a range of factors, the overriding focus was an obligation to the company’s shareholders to ensure they receive good value investment management. The board believes that this new fee structure puts the company in a competitive position relative to peers, and recognises the expertise and resources that the JPMorgan Asset Management investment team bring to this specialist asset class.

Manager’s market review

After a strong year in 2020 with incredibly resilient performance, the Russell 2000 Index ended 2021 up +14.8% in US dollar terms and +15.7% in sterling terms. Small cap stocks rose for the first half of the year, driven by optimism around vaccine roll-outs and the economic recovery; however, the highest returns were concentrated in unprofitable and lower quality stocks driven by unprecedented retail trading activity. The second half of the year marked a notable shift in investor risk appetite, as higher quality stocks came back into favour, driven largely by expected Fed tapering and associated rate hikes to combat persistent inflation.

Encouraging economic data bolstered by a steady rise in economic activity and robust corporate earnings results buoyed the US equity markets throughout the year. The extraordinary fiscal and monetary stimulus that helped shape the pandemic recovery continued to provide an excellent backdrop for risk assets. The rally was not without its challenges, as several volatility shocks tested the market’s resilience. While an unprecedented, targeted short squeeze whipsawed the US equity market in the first quarter, a confluence of mounting inflation fears, threats from COVID-19 variants, a widening fiscal deficit, and supply disruptions loomed over the rest of the year.

Finally, a fourth wave of the pandemic in some parts of Europe and the new variant Omicron were identified, triggering a sell-off in November. However, studies suggesting that the Omicron variant might be less severe than previous variants helped lift investors’ confidence, and the markets ended on strength for the third consecutive year. Although investors seemed to have looked beyond the uncertainty, tightened lockdowns and restrictions in some parts of Asia and Europe, along with rising COVID-19 cases globally, remain as potential areas of concern that could further disrupt global supply chains and move inflation higher.

In terms of style and market capitalisation, value made a comeback closing the gap with growth, while large cap stocks outperformed small cap stocks this year.

JUSC : Continued recovery sees JPMorgan US Smaller Companies outperform

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