JPMorgan American (JAM) announced its annual results for the period end 31 December 2024. The company generated a NAV total return of 24.7% in 2023 compared with 18.9% for its benchmark Index. Its share price total return was +26.6%. Since the change in investment approach on 1st June 2019 to the end of February 2024, JAM has generated a NAV total return of +116.3% compared with +97.3% for its benchmark. This represents an annualised outperformance of 2.2 percentage points. JAM’s discount narrowed from 1.7% to 0.3% in the year and it has subsequently traded at a premium allowing the re-issuance of shares from treasury. At the end of 2023, 91.5% of JAM’s assets were invested in US large cap stocks, through a high conviction portfolio of 40 stocks. This represented a carefully curated selection of the manager’s best growth and value investment ideas.
Regarding the results and the outlook, managers Jonathan Simon and Felise Agranoff commented:
“The US economy has so far held up better than many expected, and diminishing inflation pressures, combined with improved growth prospects have fueled hopes of a soft landing. The unemployment rate has remained in a narrow range between 3.4% and 4.0% since December 2021, and could stay in this range in the year ahead.
“However, the pace of job creation is likely to slow, so consumer spending could grow more slowly, especially as we expect banks to gradually tighten lending standards. However, while younger and lower income households are showing signs of increased financial stress, overall consumer financial conditions remain quite manageable, and with interest rates set to decline, we do not expect to see an outright decline in consumer spending.
“Inflation should continue its steady downward trend. Last year, reported inflation was boosted by several factors, including its large housing component, which significantly lags actual house prices and rent levels. A restricted supply of new and used cars also contributed to inflation pressures, as did faster wage growth and a sustained resurgence in airline travel following the pandemic. However, all these trends are now abating, suggesting that inflation will continue to moderate in the year ahead.
“Oil prices have fallen back within a more normal range of US$ 70-80 per barrel for West Texas Intermediate crude. Going forward, the combination of a sluggish global economy and increased output from the US and non-OPEC nations should more than offset any further reductions in OPEC and Russian output, holding oil prices in check.
“This combination of factors – a soft landing, lower inflation, falling rates and relatively stable oil prices might appear to offer a ‘Goldilocks’ scenario for the stock market; not too hot and not too cold. The market’s valuation certainly reflects a more optimistic consensus, although the headline number is boosted by some multiple expansion for the highflying Magnificent 7, with other areas of the market still offering attractive investment opportunities.
“There are certainly many potential risks to a rosy outlook, including the US presidential election, the lagged impact of higher interest rates, an expanding fiscal deficit and very significant geopolitical tensions. But the market is often said to climb a wall of worry, and in the current instance such worries have resulted in the accumulation of vast amounts of cautious cash enjoying safe, but unexciting 5.0% money market returns. As money market returns begin to track the Fed fund rate lower, at least some of this cash is likely to be tempted back to the more compelling and rewarding opportunities on offer in US equity markets. Our portfolio should benefit accordingly.”
JAM : Strong returns for JPMorgan American