JPMorgan US Smaller Companies (JUSC) bounced back from a loss-making 2025 to post a 17.2% total investment return in the first half of the year. However, the £198m investment trust’s “strongly positive” gain in net asset value (NAV) trailed the 24.1% total return from its benchmark, the Russell 2000 index. 

JUSC shareholders also saw a lower return of 12.1% as the discount, or gap, between the share price and NAV widened to 10.8% from 6.7% at 31 December, half-year results showed.

Chair Dominic Neary assured investors that the board and JP Morgan fund managers, led by Don San Jose, remained “acutely aware” of the underperformance that, following a retreat in the price since the half-year end at 30 June, leaves the shares up just 3% over five years compared to the Russell 2000’s 40% advance.

Neary said the index’s first half performance had been driven mainly by a small group of lower quality, speculative growth stocks caught up in the excitement over artificial intelligence (AI). Twelve of the top 30 stocks that generated 35% of the Russell’s growth, such as the largest, Bloom Energy, were unprofitable and did not fit with JUSC’s strategy. The index held nearly 1,500 stocks, he said, highlighting the narrowness of the market. 

“We are clearly disappointed by the recent relative performance of the company, albeit against a benchmark that can experience distortion and be somewhat unrepresentative of the style of long-term investment pursued by the company,” Neary said.

While continuing to work closely with JPMorgan on monitoring performance, the chair added: “History suggests that a sustained rebound in small caps is overdue. While these rebounds typically start with lower-quality stocks in the early stages, they tend to develop quickly into strong performance across all investment styles. There are signs that this recovery may have started,” referring to the Russell 2000’s outperformance of the S&P 500 in the first half.

Although underweight, JUSC is not entirely devoid of stocks reaping the benefit of AI demand. Three of its top performers were: MACOM Technology Solutions, a designer and manufacturer of semiconductors; Allegro MicroSystems, which supplies sensors and power management semiconductors for data centres and others; and Element Solutions, a specialty chemicals company serving electronics and industrial customers which saw increased demand tied to AI applications.

On the downside, the managers were frustrated by the lacklustre share price of MarketAxess considering the strong growth in trading seen by the fixed income trading platform. A holding in Planet Fitness also suffered as the gym group reported weaker membership growth and enrolment numbers, although San Jose said investor concerns eased with the appointment of a new chief finance officer.

In response to the discount, Neary said the board had bought back £13m, or 3.1m, of shares at an average discount of 8.7%. A further 2.9m shares had been repurchased since June, he said.

To stimulate demand, the company had stepped up marketing and was promoting the trust as a way to “invest in the heart of America”.

The growth fund paid a single 3.2p per share dividend for 2025 in July, up from 3.1p. Gearing, or borrowing, stood at 9.1% at 30 June, provided by a $35m revolving credit facility. 

Our view

James Carthew, head of investment company research at QuotedData, said: “JPMorgan US Smaller Companies’ results are interesting because they illustrate conflicting themes in markets. In the large cap S&P 500, the “Magnificent Seven” that have dominated the AI story have started to underperform, but small-cap AI plays have done well. Uncharacteristically, small caps have underperformed for years, but now they are having a resurgence just as concerns build about rising interest rates, which historically might have triggered a period of underperformance. Similarly, rising interest rates would normally be associated with underperformance of unprofitable, growth-style stocks, but these are the stocks that have led JUSC’s benchmark. I think we have to cut the managers some slack in this environment and wait for normality to reassert itself.”