JPMorgan US Smaller Companies (JUSC) has published its final results for the year ended 31 December 2024, reporting a net asset value (NAV) total return of 11.3%, modestly behind its benchmark, which it says returned 13.3% in sterling terms. Despite the slight underperformance on NAV, the trust’s share price total return was 18.7%, reflecting a significant narrowing of the discount, which closed the year at just 1.8%, down from 7.9% at the end of 2023.
JUSC’s double-digit NAV total return of 11.3% in 2024 was underpinned by strong stock selection in Financials and Consumer Staples, while holdings in Industrials and Technology detracted from relative performance. The portfolio’s quality tilt, favouring businesses with strong balance sheets and durable cash flows, was a mixed blessing in a market that favoured risk-on trades and momentum-driven growth.
Among the strongest contributors was Stepstone Group, the private markets advisory firm, which delivered robust results on the back of strong fundraising, growing fee income, and expanding margins. Fellow financial name Evercore also supported returns, benefitting from an uptick in M&A activity and increasing market share in advisory services. Within the Energy sector, DT Midstream performed well, driven by steady demand, project delivery, and a robust order book.
On the flip side, the Industrial sector weighed on results, notably through holdings in Janus International and Willscot Mobile Mini. Janus faced a softer self-storage market and commercial project delays, while Willscot was impacted by weak non-residential construction trends and the failed acquisition of McGrath RentCorp. Technology was another weak spot, with the absence of exposure to Super Micro Computer – a key AI server play – proving a relative drag as the stock rallied sharply.
The quality focus that has served the trust well in challenging markets proved a headwind during the risk-on environment of late 2024, with non-earners, low ROE companies, and high-volatility stocks driving much of the benchmark’s upside. The trust’s underweights in high-beta names limited participation in the more speculative parts of the market.
While stock selection was broadly mixed, modest positive contributions from gearing and buybacks helped support the final NAV return. Over the year, gearing added 0.3%, while buybacks enhanced NAV by a further 0.6%.
Chair Dominic Neary reaffirmed the board’s long-term conviction in US small caps, noting the asset class’s attractive valuation discount to large caps, which is now at levels last seen during the early 2000s TMT bubble. He highlighted the trust’s positioning to benefit from domestically oriented US growth policies, with US small caps typically more exposed to the home economy.
A dividend of 3.1p per share has been declared, up slightly on the prior year’s 3.0p, although it should be remembered that JUSC is focused on generating capital growth and the dividend just reflects the naturally occurring income from the underlying portfolio and so is a secondary consideration.
Over the year, the trust maintained modest gearing at 7.7%, with $30m drawn down on its borrowing facility. In line with proactive discount management, the board also executed buybacks totalling 3.05m shares (4.66% of shares in issue), at an average discount of 11.5%, enhancing shareholder value. An updated marketing campaign under the “Invest in the Heart of America” banner is underway to raise the trust’s profile and support demand for its shares.
The trust will seek shareholder approval for its continuation at the upcoming AGM in June 2025, as per its five-yearly requirement. Following a detailed review and consultations with major shareholders, the board is recommending a vote in favour of continuation, citing the strength of the investment team, the trust’s structure, and its 10-year NAV total return of 187.1%, comfortably ahead of the benchmark’s 158.9%.
Looking forward, managers Don San Jose, Jon Brachle, and Dan Percella remain constructive. They highlight attractive relative valuations, an improving macroeconomic backdrop, and the potential for earnings growth to reaccelerate in the small-cap segment. While policy uncertainty under the new Trump administration adds some risk, they believe the trust’s focus on quality, cash-generative businesses positions it well to weather volatility and continue delivering long-term outperformance.
Despite the underperformance versus the benchmark, the managers remain confident in their quality-growth approach, particularly given the valuation disconnect between small and large caps, and the underlying earnings strength within the portfolio.
