JPMorgan Global Growth & Income (JGGI) has announced its annual results for the year to 30 June 2024. During the period, JGGI provided NAV and share price total returns of 28.0% and 28.8% respectively, which compared against a 20.1% total return for its benchmark, the MSCI AC World Index (all in sterling terms). JGGI says that excess returns were generated over three major style rotations in markets and across a variety of sectors, while both US and International companies contributed to returns. JGGI intends to pay a total dividend of 22.8p per share for the year ending 30 June 2025, equivalent to a 23.6% increase over the previous year. JGGI issued 65m shares through regular issuance during the year raising £342m, while a placing and retail offer raised an additional £35m. It says that a prospectus is to be published in October to allow issuance of up to 150m shares during the life of its placing programme.

JGGI’s chair, Tristan Hillgarth, says that investor sentiment has been mostly positive during this period, with the market receiving support from the ongoing excitement about artificial intelligence, while evidence of declining inflation pressures was greeted with relief, especially as it was not accompanied by any apparent slowdown in economic growth. He adds that lower inflation has created scope for lower interest rates, with the Bank of England, the US Federal Reserve and the European Central Bank having already begun their easing cycle. Against this backdrop, JGGI outperformed its benchmark, which was the result of the managers’ stock selection.

Investment manager’s comments on performance, longer term and over the past year

“The factors that have influenced the market over the past year are all reverberations of the particularly volatile and unusual conditions that have confronted investors since the turn of the decade. During this period of war, pandemics, inflation and high interest rates, we have also experienced two strong growth markets, in 2020 and 2023, separated by a sharp value rotation.

“We are pleased with the extent of the outperformance that we have delivered over this period despite these many and varied challenges. The quality of returns is key rather than the magnitude and there are some key features we believe are worth highlighting:

1. This performance is not the result of one or two exceptional quarters but consistency across five years (since the current management team assumed responsibility);
2. These excess returns have been generated over three major style rotations in markets;
3. This performance has been driven across a variety of sectors rather than concentrated in a few; and
4. Both US and International companies have contributed to returns.

“In our view, these achievements reflect the strength of our fundamental equity research platform and its repeatability resulting in compelling stock opportunities.

“Turning to the year under review, the excess returns generated over this period have come from three key sources: our preference to own high growth stocks; our focus on stocks that can grow profitably; and our broader stock selection, which aims to identify high quality, attractively valued businesses.

“Our positioning in high growth names has served the portfolio especially well. Our largest overweight is in semiconductors, which was the best performing industry over the financial year, as demand for AI-driven processes, and the leading-edge chips which drive them, continued to accelerate. Our performance benefited from owning stocks such as Nvidia, which rose by more than 190% (in GBP terms), and TSMC, which was up by more than 70%. The earnings growth of both these companies has so far justified these strong share price gains, and, with the adoption of AI still in its early stages, we see a long growth pathway ahead for these and several other portfolio holdings most exposed to the AI revolution.

“Portfolio holdings which contributed to returns thanks to their profitable growth included Meta, Amazon and Uber – all stocks that are capital disciplined. These three businesses have all outperformed the high growth part of the market, thanks to their strong competitive positions in their respective sectors and strong free cash flow generation as a result of this.

“In terms of our broader stock selection, over 60% of the sectors in which we were invested contributed to performance over the year under review. For example, in healthcare, demand for Novo Nordisk’s obesity drug continues to grow, and there are increasingly positive indications the drug may help treat related diseases. This ongoing success has seen Novo Nordisk’s stock price almost double over the review period. Another example is the US based insurance group, Progressive. The company has been a key beneficiary of an elevated interest rate environment driving strong net income.

“While all these factors have supported performance over the past year, our caution about the near-term economic outlook, discussed above, has made us wary of the low growth cyclical parts of the economy such as commodity exposed names and industrial cyclicals. Instead, we are overweight defensive sectors such as high-quality financials and payment companies, as they are at least risk of near-term earnings declines. However, this defensive positioning has proved a drag on relative performance over the past year, as cyclicals have continued to outperform defensive stocks.”

Investment manager’s comments on Market outlook and positioning for 2025

“Across our global investment universe of around 2,500 stocks, the opportunity to find attractively valued, high quality businesses remain elevated. The two key areas where we continue to see attractive opportunities are high growth stocks, in particular those exposed to semiconductor production, and defensive sectors, where, in our view, valuations have not looked this attractive for over 15 years.

“Demand for semiconductors will be supported not only by the burgeoning demand for AI tools, discussed above, but also by the ongoing spread of digitalisation and technology in its many other forms.

“For instance, trends towards remote working and on-line entertainment, triggered during the pandemic, have created increased demand not only for PCs, tablets and consoles, but also for the computer memory capabilities that drive them. AI processes also require more powerful memory, as well as associated hardware. In response to these trends, we have added exposure to companies providing memory capacity for computers and smartphones, via a meaningful position in SK Hynix, a Korean listed market leader in leading edge memory services. We also hold Samsung Electronics, a world leader in consumer electronics, which we expect to benefit as AI-based tools become more popular.

“The transition to renewable energy sources and electric vehicles will provide further impetus to this growing demand for semiconductors and related tech, and we see many attractive structural investment opportunities in this arena. For example, our holdings in the US utilities providers which are leaders in the transition and use of renewables such as NextEra Energy and the Southern Company. Both companies have benefitted from a supportive regulatory environment in the US but regardless of the policy backdrop we believe the transition will continue to present opportunities for investors.

“Our concerns about the near term economic and corporate outlook, discussed above, have prompted some portfolio adjustments over the past year. The most significant change has been to move from an underweight in defensive consumer businesses such as food and beverage producers, to an overweight. For example, we have added new positions in Swiss food and beverage company Nestlé and Heineken, a Dutch brewer, where we expect performance to be resilient, even if growth slows. The valuations of both these companies were also attractive.

“These new purchases have been funded by the disposal of a number of defensive, asset-light, service businesses such as insurance group Progressive (mentioned earlier) and the Swiss reinsurance group, Zurich Reinsurance. Both stocks contributed to relative returns over the period and are considered high quality franchises, however, due to a more expensive valuation we exited our holdings.

“Elsewhere, we are positive on the outlook for suppliers of aircraft components. The aerospace industry is struggling to meet strong demand. Airbus’s order books are filled until 2030, and after a series of fatal accidents and equipment failures, production at Boeing is below its historical peak. As a result, airplanes are getting older, and need more maintenance and replacement parts accordingly. This is benefiting aircraft components manufacturers such as the US’s Honeywell and France’s Safran, both of which are held in our portfolio.”