JP Morgan Global Growth and Income Investment Trust: October 2023 Update

• A well-resourced team with analyst coverage in all corners of the market
• The trusts utilises a unique way of paying dividends, committing to 4% dividends based off the trust's net asset value (NAV) from the prior financial year end
• The trust has performed well since the managers took over the running of it in April 2019

How it fits in a portfolio

JP Morgan Global Growth and Income trust aims to grow capital over the longer term by investing in companies from around the globe. The managers can invest anywhere in the world including higher-risk emerging markets, but they tend to invest more in developed regions like the US and Europe. Tapping into all corners of the market, the trust could add diversification to a portfolio focused on a single market or as a building block in a global portfolio.

Investors in closed-ended funds should be aware the trust can trade at a discount or premium to the net asset value (NAV).

Manager

The team is headed up by Helge Skibeli. Skibeli has over 30 years’ experience and has been at JP Morgan since 1990, where he is a managing director and a portfolio manager within the International Equity team. He is located in London. He was previously CIO of the International Equities Research Driven Team and before that the Global Head of Developed Market Equity Research. Skibeli is also named co-manager on numerous other JP Morgan Global Equity strategies.

He’s supported by another two portfolio managers Tim Woodhouse and James Cook. Woodhouse, who is located in New York, has over 15 years’ experience and joined JP Morgan as a graduate trainee. He was previously a research analyst in the technology, media, and telecoms sectors before becoming a portfolio manager. Cook, who is located in London, is the newest member of the team having joined in 2019. He was also a graduate trainee when he joined in 2007. Before joining the international equity team he was a research analyst covering financials and worked as a portfolio manager on the Global Financials Fund.

Process

Skibeli and the team aim to build a global equity portfolio of high conviction stocks. The portfolio is comprised of bottom-up stock picking based on the analyst team’s best ideas. The team focus on ideas where the companies are attractively valued and growing their earnings faster than their peers.

To identify opportunities, the managers utilise their in-house analyst team to carry out the fundamental company research. The analysts are located all over the world and often communicate with analysts in other regions that cover different companies within the same industries, so that they get a wider perspective on certain companies and their industries. There is a focus on mid to long-term earnings and cashflows when assessing an individual company. They cover around 2,500 companies across global stock markets.

When building the portfolio, Skibeli is focused on building a high conviction portfolio that typically comprises of 50-90 stocks. He draws on the fundamental research done by the analysts as a starting universe however, focusses on three key criteria's. A stock must have significant upside potential, these names also typically avoid large share price falls. The team must have clear insight; they understand why the companies are different to competitors in the space and what gives that company the edge to outgrow peers. Finally, the managers focus on high-quality companies who have resilient balance sheets that trade at attractive valuations.

The managers also commit to paying a dividend. Their current intention is to pay dividends totalling 4% based off the trust’s net asset value at the end of the trust’s prior financial year. They achieve this by distributing the dividends that are received from their investments. If dividends received are below the amount needed to pay a 4% dividend for the trust, the trust will use capital growth to fund the remainder of the dividend. This is a feature of investment trusts that isn’t available to open-ended funds. This means the trust’s board of directors can covert some of the trust’s capital growth into income to top up the dividends. Paying dividends out of capital means the trust will have to sell some assets in order to fund the income, meaning the NAV will fall. If the trust does not have enough capital growth to top up the dividends it may be unable to meet its commitment.

Over the trusts last financial year, the biggest changes to the portfolio were adding exposure to various countries that previously the trust had no exposure to. The trust now has exposure to the UK, Switzerland, India, Canada, Mexico, Netherlands, China and Hong Kong, whilst exposure to Australian and Belgium has now gone to zero. The managers have also made changes to their sector exposure. Technology, both hardware and software, has increased, whilst exposure to pharmaceuticals and banks decreased.

During 2022, the managers believed there was a lot of indiscriminate selling, and this provided the team opportunities to buy names that they believed were caught up in that sell-off. This includes the US discount retailer Ross Stores and Canadian bank Toronto Dominion. They also found attractive entry points to rebuild the higher quality names such as Mastercard, United Healthcare and Uber. The manager sold a number of names for valuations reasons which include French tyre manufacturer Michelin and US biomedical company Boston Scientific. French luxury brand company LVMH was also reduced for valuation reasons.

The managers also use gearing (borrowing to invest), which can improve gains but also increases losses, which makes it a higher-risk approach. Gearing currently stands at 0.4% however, their limit is 20%. They also have the flexibility to use derivatives, which if used, adds risk. Potential investors should refer to the latest annual reports and accounts for details of the risks and charging structure.

Culture

JP Morgan is one of the world's biggest asset managers. It has investment professionals based all over the world, and the team behind this fund can tap into this experience and local knowledge. The group is home to a strong global offering and the team is stable, with low turnover among senior members.

ESG integration

JP Morgan committed to integrate Environmental Social Governance (ESG) factors into their investment processes for active funds in 2016 and ESG is now a foundation for investment decisions across the firm. JP Morgan funds take a variety of different approaches, from quantitively scoring companies on a variety of ESG measures to help with portfolio construction, to more qualitative analysis achieved through fundamental research and company meetings. All fund managers have access to the central Sustainable Investing team, as well as thematic research and analytics, which focus on climate change and carbon transition.

Investment teams are required to demonstrate their progress on integrating ESG to a working group of senior managers from across the business and the Sustainable Investing team. Their progress is measured against a 10-point scoring system and must satisfy several conditions before it can achieve ‘ESG accredited’ status. If the strategy does not meet this threshold, the investment team in question will need to incorporate the feedback from the working group and reapply to restart the review process. Once approved, teams must seek recertification every three years, and are subject to ongoing monitoring. We like this objective approach to internal ESG accreditation.

The firm has detailed voting policies which are specific to each region they invest in and account for local customs. Investment teams and investment stewardship specialists in the relevant region are responsible for implementing those policies, based on their deep knowledge and experience of the country, sector and company. A detailed fund-by-fund and company-by-company voting record is available on the JP Morgan website, although voting rationale is not provided. Fund managers also regularly engage with the companies they invest in, and there are a number of case studies on their website and in their annual Investment Stewardship report.

Cost

The ongoing annual charge over the trust’s financial year to 30 June 2023 was 0.22%. This is materially lower than the previous year due to a one-off reduction of merging with Scottish Investment Trust. The prospective ongoing charge, without any management fee waiver, is estimated to be approximately 0.50%. Investors should refer to the latest annual reports and accounts, and Key Information Document for details of the risks and charging structure. If held in a SIPP or ISA, the HL platform charge of 0.45% per annum (capped at £200 per annum for a SIPP and £45 for an ISA) also applies. The platform charge doesn’t apply if the trust is held in a Fund and Share Account.

Investment trusts trade like shares, both a buy and sell instruction will be subject to the HL share dealing charges.

Performance

The trust has provided strong returns since the managers took over in April 2019. The share price has increased 75.40%* compared to 18.06% of the AIC Global Equity Income sector average. During this time the NAV has risen 75.91%. Past performance is not a guide to the future though and investments fall as well as rise in value so you could get back less than you invest.

During the trust’s latest financial year to the end of June 2023 the share price rose 19.12% outperforming the AIC Global Equity Income sector average which returned 2.78%. The trusts NAV also increased 19.09%. Investment in communication services company Meta was the largest contributor to returns as the company’s share price has responded well to the announcement of trying to improve their capital discipline. Meta announced three rounds of headcount reduction and committed to controlling investments in their reality labs. The trust also did well with their investment in US discount retailer Ross Stores. Discount retailers have shown to be more resilient businesses despite demand weakening in the retail sector. Luxury brand LVMH also performed strongly, benefiting from the re-opening of China and unlike most of the retail space LVMH managed their supply chain much better.

On the other hand, not all stocks performed well. The trusts positions in banks detracted over the trust’s financial year. Belgian bank KBC was impacted by Russia’s invasion in Ukraine where they had exposure to Eastern European economies. US regional bank Truist Bank was caught in the Silicon Valley deposit run in March 2023. Although it wasn’t one of the banks that defaulted it was deemed to be at a higher risk of deposit outflows. Pharmaceutical companies Abbvie and Bristol-Myers Squibb also detracted however; the team believe these to be short-term issues.

The trust currently trades at a premium of 2.05% and currently yields 3.59%, although yields are not an indication of future income and are not guaranteed.

Annual percentage growth

Past performance isn't a guide to the future. Source: *Lipper IM to 30/09/2023.