JPMorgan Global Growth & Income (JGGI) has unveiled a second year of underperformance with chair James Macpherson saying its fund managers had “underestimated the scale and market impact of the AI investment boom”.
JP Morgan portfolio managers Helge Skibeli, who will retire in 2028, James Cook and Sam Witherow admitted the year to 30 June was a “challenging and disappointing period” when they were unable to keep up with the market’s “euphoria” around artificial intelligence.
Although the £3.3bn JP Morgan flagship grew 16.7%, a lack of exposure to lower-quality semi-conductor manufacturers enjoying an unprecedented $1.3trn AI spending frenzy saw the portfolio trail behind the 27.7% return of the MSCI All Countries World index.
Holdings in consumer franchises such as Lowe’s, a DIY retailer, McDonalds and Yum! China also fell while core positions in “hyperscalers” Microsoft and Amazon were held back by concerns of the scale of their AI spending, although the managers remain convinced they will be long-term winners of the technological revolution.
JGGI’s shareholders had to settle for a 15.1% total return for the year including dividends as the share price discount to net asset value (NAV) widened slightly. This was despite the board splashing £198.3m on buying back shares to prevent their price falling more than a 5% below NAV.
The trust’s performance was largely achieved without gearing, or borrowing. The company started the year with net cash of 0.6% and ended with net gearing of 0.4%, reflecting the managers’ caution towards the market’s reliance on a small number of AI supply chain stocks.
This is the second year in a row of underperformance by JGGI. In the previous 12 months its 1% investment return lagged the 7.2% from its index, although in 2023/24 it outperformed with 28% growth versus the benchmark’s 20.1%.
Long-term performance remains strong with 273% growth in NAV over 10 years driving a 330.3% total shareholder return that outpaces the benchmark’s 235.4% return.
Macpherson said: “It is worth remembering that the company has outperformed the benchmark in eight of the past 10 financial years ending 30 June 2026, delivering average annualised returns of 14.1% over this period.”
Nevertheless, JP Morgan has had to respond, tweaking the system of corporate earnings signals it gathers from 80 analysts around the world to ensure better alignment with AI-driven change after it underperformed for most of the past two years.
After underestimating the AI capex buildout and the impact this would have on the wider tech supply chain, JGGI’s managers have tilted the portfolio back towards momentum stocks while taking care not to chase up prices to unsustainable levels.
They explained that they had begun the year “materially underweight” to generic manufacturers of memory chips, instead favouring higher quality producers of cutting-edge chips such as TSMC and ASML, where 3.5% and 2.6% of assets are held.
They said these companies “possess a degree of monopoly power” but added: “However, these stocks have materially lagged their lower-quality peers, despite outperforming the broader market. We have taken steps to manage our exposure to these developments through managed underweight positions to certain names, whilst maintaining high active weights in quality monopolies which we expect to generate significant alpha over time.”
Overall, they are determined to keep JGGI diversified. “We do not want the portfolio to be overly reliant on the AI theme and want to ensure that performance comes from a board rate of sectors as the market continues to digest the implications of this new technology and the broadening range of outcomes associated with it.”
JGGI paid 23p per share in quarterly dividends during the year, a distribution it is increasing to 24.8p in the current financial year with dividends of 6.2p every three months up from 5.75p. This is the eleventh year in a row that dividends have risen.
Our view
David Batchelor, senior analyst at QuotedData, said: “An 11% shortfall against the benchmark is a disappointing result for JGGI, particularly given its strong long-term track record. The managers have been candid about what went wrong, acknowledging that they underestimated the scale of the AI investment boom and that their preference for higher-quality businesses left them on the wrong side of a powerful momentum-driven market.
“There is a risk of adapting to a market trend just as it begins to reverse, but the managers appear conscious of this and have resisted abandoning their valuation discipline. The trust’s longer-term record remains impressive, with NAV returns ahead of the benchmark over five and 10 years, while the 7.8% dividend increase and £198m of buybacks demonstrate the board’s continued commitment to shareholders – albeit the trust is still trading at a small discount.”
