JPMorgan American has published results covering 2024 which show it beating the S&P500 Index in both NAV and share price terms. The trust posted a NAV total return of 30.6% compared with 27.0% for the S&P 500 Index and a share price total return 32.6%. Since the company changed its investment approach on 1 June 2019, it has outperformed the benchmark index by 22.4%.
The full-year dividend is 11p, up 41.6% on last year.
The ongoing charges ratio fell to 0.35% from 0.38%.
During the year 4,862,262 shares (2.7% of the issued share capital) were purchased into treasury, at a cost of £48m and an average discount of 3.6%. The company also issued 1,355,000 shares at an average premium of 0.9% to NAV, generating proceeds of £14m. Since the year end, the company has been able to issue a further 1,414,046 shares at a premium and 950,499 shares have been purchased into treasury.
[This was a phenomenal achievement by JPMorgan American in what was a really hard year for active managers to navigate.]
Extracts from the managers’ report
The outperformance by the large company portion of the portfolio over the review period was mainly driven by good stock selection.
Kinder Morgan, one of the largest energy infrastructure companies in the US, was a strong stock-specific contributor. The company’s earnings growth was bolstered by increased demand for natural gas, including liquefied natural gas (LNG) exports, and strong overall demand for energy, especially from data centres. Additionally, Kinder Morgan maintained a robust project pipeline, further enhancing its growth prospects. We remain confident in this stock, due to the company’s stable earnings from natural gas volumes rather than price.
Our overweight position in Broadcom, a leading semiconductor company, proved highly beneficial, as its share price surged over 100% during the period. The company experienced robust growth, fuelled by the strong appetite for artificial intelligence (AI) related products and the successful integration of VMware, a software provider which helps companies operate using a mix of computer environments. Broadcom’s semiconductor revenue reached US$12.2 billion in the 2024 fiscal year, and there is potential for significant further growth, as it is projecting the serviceable addressable market (SAM) for its AI semiconductors to be US$60-90 billion by fiscal 2027, with key customers including Google, Meta, and ByteDance. Despite facing some challenges in non-AI segments, Broadcom’s overall financial performance remained strong, with notable improvements in operating margins and annualised booking values.
Another top contributor was Meta Platforms (formerly Facebook), which is experiencing strong momentum driven by advances in AI and its Reality Labs segment, which provides augmented and virtual reality related products, including consumer hardware, software, and content. Meta AI has rapidly gained traction, with over 500 million monthly active users. Enhancements in AI-driven feed and video recommendations have boosted user engagement on Facebook and Instagram. Within the Reality Labs segment, Meta has successfully launched Ray-Ban Meta glasses and is developing Orion augmented reality (AR) glasses, which are expected to be available in two to three years. The company is focusing on long-term opportunities, including in AI, virtual reality, and new product initiatives such as click-to-messaging ads and Reels, an advanced video production tool, with the aim of maintaining its industry leadership and exploring new revenue growth opportunities.
The most significant stock-specific detractor from the portfolio’s performance relative to the S&P 500 was our lack of exposure to Tesla. Although we have previously held Tesla in our portfolio, we decided to sell the stock in January 2024, due to concerns about increased competition from Chinese and European players. As the year progressed, Tesla’s share price was supported by improvements in its profitability, which were driven by cost reductions and enhanced production efficiency, and announced plans for a more affordable EV model. Despite these positive developments, we are concerned about the potential for new vehicle models to cannibalise sales of the Model 3 and Model Y lines. Furthermore, we see challenges related to the full self-driving (FSD) technology, as well as from increased competition and economic pressures, all of which have the potential to adversely affect Tesla’s profitability. These considerations have led us to remain on the sidelines for now.
Our position in Regeneron Pharmaceuticals also detracted from performance during 2024, as its stock price declined due to competitive pressures and legal challenges. The company reported strong revenue and earnings growth, driven by the successful launch of Eylea HD, a treatment for macular degeneration, and the robust performance of Dupixent, which relieves the symptoms of eczema and asthma. However, there are concerns about Eylea’s competitive positioning, particularly with the potential entry of Amgen’s biosimilar medication, an innovative, alternative treatment for macular degeneration. The company also faces legal issues related to the False Claims Act. Both of these concerns have negatively impacted the stock. Despite the current headwinds, Regeneron remains a compelling investment opportunity with long-term growth prospects, due to its significant research and development investments in oncology, immunology, and obesity, along with its robust pipeline.
Weyerhaeuser, one of the world’s largest holders of timberlands, was another significant detractor. The company’s stock price came under pressure due to declining sales, which were driven by lower harvest volumes and increased processing costs. The company faced significant challenges from high input costs and sector-wide underperformance, exacerbated by the impact of higher mortgage rates on housing activity. Additionally, regulatory scrutiny and shifting market dynamics in the wood products industry contributed to uncertainty, negatively impacting investor sentiment and stock performance. Following the sale of our position in May, the stock continued to decline, reflecting the ongoing difficulties faced by the company and the broader industry.
The small cap portfolio negatively impacted returns over the review period, as it underperformed the S&P 500. The overall allocation to the small cap portfolio was maintained at an average of 6% during the year. Small cap valuations continue to look compelling relative to large caps following a prolonged period during which large caps outperformed small caps. Valuations may indicate the conditions are ripe for a potential reversal, we feel caution is still warranted.
JAM : JPMorgan American cements impressive year to extend its lead over the S&P500
