TIDMJAM
RNS Number : 4968I
JPMorgan American IT PLC
22 March 2018
LONDON STOCK EXCHANGE ANNOUNCEMENT
JPMORGAN AMERICAN INVESTMENT TRUST PLC
FINAL RESULTS FOR THE YEARED 31ST DECEMBER 2017
Legal Entity Identifier: 549300QNAI4XRPEB4G65
Information disclosed in accordance with the DTR 4.1.3
CHAIR'S STATEMENT
I am very pleased to present my first annual statement as Chair
of the Company. The year to 31st December 2017 was another positive
one for investors in US equities, as the S&P 500 Index on a
total return basis rose a further 21.5% for US investors, or 11.0%
for UK investors once the effect of sterling's appreciation against
the US dollar is taken into account. The Company has outperformed
its benchmark in the 12 months to 31st December 2017 on a net asset
value cum-income, with debt at fair value ('NAV') per share basis,
returning 13.1%. The discount of the share price to NAV (calculated
using the cum-income net asset value, with debt at par) widened
marginally, from 3.1% to 4.5%, resulting in a total return to
shareholders for the year of 11.2%.
Performance
The Company's objective is to achieve capital growth from North
American investments through outperformance of the Company's
benchmark, which is the S&P 500 Index (with both NAV and
benchmark measured in sterling total return terms).
This year's NAV growth represents a return to relative
outperformance for the mandate, following two years of relative
underperformance. As can be seen from the attribution report
detailed in the Investment Manager's Report below, the Company's
large cap portfolio detracted slightly from performance returns,
whilst the small cap allocation significantly outperformed. Gearing
was accretive to returns. It is disappointing that the large cap
strategy has underperformed for a third year in a row, but the
Board is encouraged that recently implemented changes to the
investment process, to include reducing the number of holdings in
the large cap portfolio and reducing the size of the portfolio
tail, will bear fruit over the longer term. It is notable that
during 2017 the market rise was significantly concentrated within a
relatively narrow range of stocks and sectors. For more details of
the Board's review of the investment process and its findings
please refer to my predecessor's Chair statement within the
Company's 2016 Annual Report.
Garrett Fish became lead manager for the Company's portfolio
during 2002. Over the 15 years of his management, Garrett has
delivered material outperformance. During the 15 years to 31st
December 2017, the Company's share price has risen 437.5% (an
annualised return of 11.9%), while the Company's benchmark returned
367.3% (an annualised return of 10.8%). This outstanding result
demonstrates the long term benefits of deploying a sound investment
process with the structural advantages afforded by the closed end
nature of an investment trust.
Smaller Companies Portfolio
Shareholders will be aware that the Company's mandate permits
the Investment Manager to invest in a diversified portfolio of
quoted companies including, when appropriate, exposure to smaller
capitalisation stocks. The Manager obtains this exposure by
replicating the portfolio of the JPMorgan US Small Cap Growth Fund.
This fund, which is managed by Eytan Shapiro and his team, invests
in US small cap stocks and can only be accessed by US investors.
Throughout 2017, the Company's weighting in the smaller companies
portfolio ranged between 4.8% and 6.2%. Given that in 2017 US small
cap stocks outperformed their larger counterparts for the first
time since 2013 and Eytan and his team significantly outperformed
the US small cap index, as represented by the Russell 2000, the
allocation to smaller companies greatly assisted the Company's
performance this year. The ability of the Investment Manager to
allocate a proportion of the portfolio to small cap stocks was
reviewed in detail by the Board and Manager over the year. Having
examined data from 2003 to 2017, it was clear that the allocation
to smaller companies stocks, given their growth characteristics,
had, in aggregate, been accretive to the Company's performance
returns over this timeframe. It was also clear that when small cap
stocks are cheap on valuation criteria, they tend to outperform
their large cap brethren, and vice versa. Accordingly, shareholders
should continue to expect the Company to hold a varying allocation
to small cap stocks over time, now with a higher average of around
6.5% of the assets, with an upper bound of 9.5%. Reassuringly, when
reviewing the analysis from this exercise, the Board was also
satisfied with the source of the Company's small cap exposure;
Eytan and his team have demonstrated skill in this area of
investment.
Gearing
Over the year gearing remained within the Board's strategic
level of 10%, plus or minus 2%. Our Investment Manager has the
ability to hold cash of up to 5% of net assets if it is felt that
there is a real risk of long term capital loss.
The ability to gear remains one of the differentiating features
of the investment trust structure and, accordingly, the Board is
cognisant that gearing should be employed, but in a controlled and
risk aware manner. Attribution informs us that the gearing employed
by the Company was accretive to performance this year. The
Company's gearing is implemented through the use of bank borrowing
facilities and a debenture. The debenture was issued in 2000 and
carries a fixed interest rate of 6.875%. In the latter half of its
life the debenture has proved to be a drag on performance and its
maturity in June this year will allow the Company to refinance at a
significantly lower rate. Its forthcoming maturity has also
provided the Board with an opportunity to conduct a detailed review
of the Company's gearing strategy and the structure and sources of
borrowing going forward. Shareholders will be informed of the
results of this exercise once completed.
Board Review of the Manager
As in prior years, the Board has visited the Manager's offices
in New York where it held meetings with Garrett Fish and the
manager of the smaller companies portfolio, Eytan Shapiro. The
Board further met with JPMorgan's senior management, members of the
behavioural finance team of which Garrett is a member, the
corporate engagement and the dealing teams. The Board also
travelled to Washington D.C. and met with economic and political
commentators, including the British Ambassador, senior Embassy
staff and experts at the Brookings Institution, all of which helped
put the Investment Manager's views into context, and provide a
perspective on Mr Trump's first year as U.S. President.
In addition to managing the portfolio, the Manager provides
other services to the Company, including accounting, company
secretarial and marketing services. These have been formally
assessed through the annual manager evaluation process. The Board
concluded that it was generally satisfied with JPMorgan's
performance. Thus, taking all factors into account, the Board
concluded that the ongoing appointment of the Manager is in the
continuing interests of shareholders.
Management Fees and Other Company Expenses
As reported in my Half Year Statement, and announced in June
2017, the Board confirmed a significant reduction in the Company's
fee structure. With effect from 1st October 2017, the annual
management fee, which was 0.50% of total assets less current
liabilities, with no tiering, is charged at an annual rate as
detailed below:
- 0.35% on the first GBP500 million of net assets;
- 0.30% on net assets above GBP500 million and up to GBP1 billion; and
- 0.25% on any net assets above GBP1 billion.
As reported previously the Board and JPMorgan believe that this
new fee structure allows the Company to retain its competitive
position against both Exchange Traded Funds ('ETFs') and other
quant and smart beta products, while continuing to pursue a core
active management strategy with an improved investment process.
The Board continues to focus on costs incurred by the Company
across all of its functions, with a view to enhancing shareholder
value. Over the year, fee reductions have also been negotiated with
each of the Company's Depositary, Registrar and Broker.
Furthermore, following the implementation of regulatory changes
detailed below, JPMorgan has undertaken to pay for all broker
research commissions from 1st January 2018. Although only a
proportion of the fee reductions achieved are reflected in the
Company's Ongoing Charge for 2017, at 0.55%, this figure represents
a significant reduction from 2016 at 0.62%. The fee reductions
should further reduce the Ongoing Charges in 2018, ensuring that
the Company remains on a competitive footing.
The table set out below illustrates the returns generated on the
Company's investments, the extent to which the capital base of the
Company has grown or shrunk through share issuance and buy-backs,
and the full costs of the Company's operations. The Company's
biggest cost remains the management fees at GBP4.6 million (2016:
GBP4.5 million). As this fee is calculated as a percentage of
assets it varies with the size of the Company and therefore rose,
although since only one quarter of the year reflects the changes in
management fee structure, this figure is likely to reduce next
year. No performance fee was payable. However, the Company's NAV
total return outperformed the total return of the S&P 500 Index
resulting in a performance fee calculation of GBP1,736,492 for
2017. This amount, when added to the negative GBP3,339,696
performance fee offset brought forward, leaves a total remaining
negative offset of GBP1,603,204. This entire amount will be carried
forward and offset against future outperformance. Full details of
the mechanics of the performance fee payments are detailed in the
Company's Annual Report & Financial Statements for the year
ended 31st December 2017 ('2017 Annual Report').
2017 2016
Percentage Percentage
of opening of opening
GBP'000s net assets GBP'000s net assets
--------------------------------------------------------- ---------- ----------- ---------- -----------
Net assets at start of year 985,216 100.00 816,700 100.00
Increase in net assets during the year from investing 97,960 9.94 240,077 29.40
Brokerage fees/commissions and other dealing charges (226) (0.02) (238) (0.03)
--------------------------------------------------------- ---------- ----------- ---------- -----------
Net investment performance 1,082,950 109.92 1,056,539 129.37
Income received from investing - net of withholding tax 16,594 1.68 17,617 2.16
Interest received 177 0.02 77 0.01
Dividends paid to shareholders (12,065) (1.22) (12,658) (1.55)
Interest paid on borrowings (4,545) (0.46) (4,016) (0.49)
Currency gains/(losses) on hedge 2,809 0.29 (7,174) (0.88)
Currency gains/(losses) on USD loans 4,684 0.48 (5,678) (0.69)
Management fee (4,644) (0.47) (4,545) (0.56)
Directors' fees (173) (0.02) (177) (0.02)
Other costs of the Company (480) (0.05) (625) (0.08)
Repurchase of shares into Treasury (net of costs) (104,877) (10.65) (54,144) (6.63)
--------------------------------------------------------- ---------- ----------- ---------- -----------
Net assets at end of year 980,430 99.52 985,216 120.60
--------------------------------------------------------- ---------- ----------- ---------- -----------
Share Price and Premium/Discount
Throughout the year, the Company's shares have traded at a
discount to the NAV. The Company has continued with its buy back
policy, repurchasing 27,487,592 shares into Treasury, at a cost of
GBP104.9 million, representing 10.6% of the Company's issued share
capital at the beginning of 2017. These shares were purchased at an
average discount to NAV of 4.4%, producing a modest accretion to
the NAV for continuing shareholders. Such action reaffirms the
Board's commitment to its shareholders to buy shares back when they
stand at anything more than a small discount to NAV.
The Company will again be asking shareholders to approve the
repurchase of up to 14.99% of the Company's shares at the Annual
General Meeting. We will also be seeking shareholder permission to
issue shares, where Directors are confident of sustainable market
demand. The authority, if approved, will allow the Company to issue
up to 10% of its issued share capital from Treasury. The Company
will only issue shares at a price in excess of the estimated NAV
including income with the value of the debt deducted at market
price.
Dividends
The Company paid an interim dividend in respect of the 2017
financial year of 2.25p on 5th October 2017. Subject to shareholder
approval at the Annual General Meeting, a final dividend of 3.25p
will be paid on 15th May 2018 to shareholders on the register on
13th April 2018, making a total of 5.5p per share, compared with
last year's total of 5.0p per share, representing an increase of
10%.
After the payment of the proposed final dividend, we will have a
balance in the revenue reserves of GBP17.8 million (equivalent to
7.7p per share (2016: 6.2p) or 1.4 times (2016: 1.2 times) the
current dividend). It is our intention that such reserves be used
to support dividend payments when corporate pay outs are less
healthy in the short term, or if there are other fluctuations in
the revenue account which we assess to be temporary.
Regulation
As shareholders may be aware, from January this year the Company
has become subject to considerable new regulation with additional
regulatory changes awaited later in 2018, to include new regulation
from the EU to bring data protection legislation in line across
Europe. The first new requirements relate to the Packaged Retail
and Insurance-based Investment Products ('PRIIPS') and the Markets
in Financial Instruments Directive II ('MiFID II') regulations,
which came into force on 1st January and 3rd January 2018,
respectively.
PRIIPS require Managers, who are deemed to be the manufacturer
of investment products (which includes investment trusts), to
prepare a Key Information Document ('KID') in respect of the
Company. The Company is not responsible for the information
contained in the KID and investors should note that the procedures
for calculating the risks, costs and potential returns are tightly
prescribed by regulation. The figures in the KID may not reflect
future returns for the Company and anticipated performance returns
cannot be guaranteed. The KID is available on the Company's
website. It is recommended that the KID is not considered in
isolation but is read in conjunction with other documents published
by the Company and its Manager.
The original MiFID EU regulation, which came into force in 2007,
with the aim of creating a common internal market and increasing
competition across Europe for investment services and trading
activity has been extended through the introduction of MiFID II.
MiFID II supplements the existing regulation covering trading and
reporting requirements. It is worth highlighting that MiFID II has
improved the transparency around research costs that had been paid
by clients, which in future will now be absorbed by JPMAM.
Considerable work was undertaken by JPMAM to ensure compliance by
the Company on the date of implementation.
The Board
The Board has procedures in place to ensure that the Company
complies fully with the AIC Code on Corporate Governance and the UK
Corporate Governance Code. In accordance with corporate governance
best practice, an externally facilitated board evaluation was
completed in respect of 2017 and the results confirmed that all
Directors possessed the experience and attributes to support a
recommendation to shareholders that they retire and seek
re-appointment at the Company's forthcoming Annual General
Meeting.
The Board continues to manage succession so that it has an
appropriate balance of skills and diverse approaches to its tasks.
Having served as a Director since 2005, Sarah Bates retired from
the Board in July last year. Robert Talbut joined the Board with
effect from 11th May 2017. These changes were described more fully
in my Half Year Statement of 3rd August 2017.
The Board will continue to manage succession and refresh its own
composition over time.
Directors' fees have not been increased since 1st January 2015.
To ensure that the Company can continue to attract good quality
candidates and to reflect the increasing workload and
responsibilities involved, an increase of GBP1,000 per Director
will be payable from 1st January 2018.
Annual General Meeting and Shareholder Contact
This year's Annual General Meeting is the Company's 102nd and it
will be held on Wednesday, 2nd May 2018 at 2.30 p.m. at 60 Victoria
Embankment, London EC4Y 0JP. As in previous years, in addition to
the formal part of the meeting, there will be a presentation from
Garrett Fish, who will answer questions on the portfolio and
performance. There will also be an opportunity to meet the Board,
Garrett, and representatives of JPMF after the meeting. I look
forward to welcoming as many shareholders as possible to this
meeting. Throughout the year and in addition to the opportunity to
hear from shareholders at the Annual General Meeting, I very much
encourage shareholders to get in touch to share their views. I can
be contacted through our Company Secretary, whose details are set
out below and in the 2017 Annual Report.
Outlook
Since the Great Financial Crisis of 2008, unorthodox monetary
policies have been followed by the world's leading Central Banks.
These policies have succeeded in avoiding a global recession and
recapitalising the tenuous balance sheets of the banking sector.
But along the way, they have also created asset price inflation.
Over this period, the Company's NAV has comfortably more than
tripled as the US stockmarket has appreciated in value. We may now
be at a point of change. The Federal Reserve, along with other
Central Banks, has begun to tighten monetary policy. It remains to
be seen how bond and equity markets fare when faced with a headwind
of rising short interest rates, but it would seem prudent to expect
occasional bouts of market volatility.
The Board takes reassurance from the fact that the Manager
constructs the Company's portfolio to have favourable valuation,
quality and momentum attributes when compared to the overall market
benchmark. While these cannot provide immunity from market
declines, over time they are the features which should favour
outperformance.
Dr Kevin Carter
Chair
22nd March 2018
INVESTMENT MANAGER'S REPORT
Market Review
Performance in the US equity markets in 2017 proved to be much
stronger than most investors anticipated at the beginning of the
year. The newly passed tax reform act, the continued strength in
the job market and the resulting hopes for greater capital
investment have led Street analysts to raise earnings estimates and
lent support to the equity market. The S&P 500 Index finished
the year up 11.0% in sterling terms, including dividends, and hit
all-time highs 62 times over the course of the year. The median
daily market move was just 0.18%, the smallest on record. The
largest peak-to-trough drawdown was 2.8%, the mildest year since
1995. To put some context around that number, the average
intra-year drawdown since 1980 has been 13.8%.
Growth stocks, those stocks that tend to have a low dividend
yield but above average prospects for capital growth, surged this
year with the Russell 1000 Growth Index up 30.2% versus 13.7% for
the Russell 1000 Value Index, an index that tracks higher yielding,
slower growing value stocks. The technology and materials sectors,
up 38.8% and 23.8%, respectively led the S&P 500 Index, with
the telecom and energy sectors trailing.
The economic environment was robust over the course of the year.
The Federal Reserve raised interest rates three times in 2017,
bringing the Fed Funds rate to 1.25% - 1.50%. The Fed also
increased the cap on the balance sheet run-off, the process by
which it plans to shrink its balance sheet as the bonds it acquired
in the course of its quantitative easing policy mature, to USD20
billion per month starting in the first quarter of this year. The
FOMC decision relied on evidence of underlying strength in the
economy and the labour market. However, inflation continues to be
muted which means a gradual approach to interest rate policy
normalization will be likely. IHS Markit US Manufacturing PMI(TM)
(Purchasing Managers Index) was strong over the course of the year.
The December number of 55.1 was the highest since March 2015 and
signalled a solid improvement in the health of the industrial
sector. US strength coincided with strength around the globe with
the J.P. Morgan Global Manufacturing PMI(TM) rising to 54.5 in
December, near a seven-year high.
Legislative reform was perhaps the biggest political
consideration of the year for the equity markets. After the failure
to pass the American Health Care Act (AHCA) put the proposed tax
plan in question, the early optimism around a legislative boost to
corporate earnings waned. The eventual signing of the tax reform
act in late December resulted in raised earnings estimates for many
companies and gave investors renewed hope that 2018 would see an
increase in investment spending.
The US Consumer Price Index rose 0.4% in November, and by 2.2%
over the last 12 months. This was driven by a strong increase in
the energy components of the index. Crude oil (WTI) rose more than
12% over the year supported by a continued drawdown of global
inventories late in the year. This tightening in inventory was
caused by a number of factors, including supply disruptions caused
by the hurricane season, increased compliance of production quotas
by OPEC members and strong global demand.
Overall Asset Allocation and Performance
The Company's NAV rose by 13.1% in total return terms in 2017.
The return was above the benchmark, the S&P 500 Index, which
rose 11.0% in sterling terms.
The investment management team is responsible for managing the
allocation between the large and the small cap portfolios, together
with the levels of cash and gearing. In 2017, the Company's gearing
ranged between 8.5% and 9.2% of shareholders' funds, with the level
at the year-end registering at 9.2%. The level of gearing has been
adjusted at regular intervals within the gearing guidelines laid
down by the Board. With the market rising last year more than the
cost of debt, gearing contributed to relative performance. The
weighting in the small cap portfolio ranged between 4.8% and 6.2%
and ended the year at 5.0%. We have reduced our number of holdings
in the large cap portfolio to improve the performance in this area,
to bring greater focus to the core portfolio and to reduce the size
of the portfolio tail. We believe that our ability to move between
the two segments enhances returns to shareholders over the long
term and also helps to balance our overall risk. Attribution data
for 2017 in dollar terms, shows that our large cap portfolio
modestly detracted for the period, while our smaller companies
portfolio was additive. We further enhanced our Small Cap Growth
allocation tool to increase our weighting even more when the
outlook is more favourable and vice versa in order to capture the
strength of the underlying signal.
Large Companies Portfolio
Our investment methodology continues to focus on investing in
high quality, reasonably valued companies. When constructing our
portfolio, we use the core tenets of behavioural finance to narrow
our investment universe. Behavioural finance theory indicates that
on average, high quality, fast growing, cheap stocks with good
news-flow outperform lower quality, slow growing, and expensive
stocks with bad news-flow.
Performance attribution
for the year ended 31st December 2017
% %
-------------------------------------------- ----- -----
Contributions to total returns
-------------------------------------------- ----- -----
Net asset value total return (in sterling
terms) 13.1
-------------------------------------------- ----- -----
Benchmark total return (in sterling terms) 11.0
-------------------------------------------- ----- -----
Excess return 2.1
-------------------------------------------- ----- -----
Contributions to total returns
-------------------------------------------- ----- -----
Large cap portfolio -0.6
-------------------------------------------- ----- -----
Allocation effect 1.0
-------------------------------------------- ----- -----
Selection effect -1.6
-------------------------------------------- ----- -----
Small cap portfolio 1.2
-------------------------------------------- ----- -----
Allocation and selection effect 1.2
-------------------------------------------- ----- -----
Gearing (including change in the value of
the debenture) 1.8
-------------------------------------------- ----- -----
Cost of debt -0.5
-------------------------------------------- ----- -----
Currency hedge 0.4
-------------------------------------------- ----- -----
Share issuance/buy back 0.4
-------------------------------------------- ----- -----
Management fee/expenses -0.6
-------------------------------------------- ----- -----
Total 2.1
-------------------------------------------- ----- -----
Source: JPMAM and Morningstar. All figures are on a total return
basis.
Performance attribution analyses how the Company achieved its
recorded performance relative to its benchmark index. A glossary of
terms and alternative performance measures is provided within the
2017 Annual Report.
Taking this approach, we rank the stocks in our universe to
uncover those companies that are high quality, attractively valued
and are also exhibiting improving sentiment (momentum). We then
undertake fundamental research to validate the rankings. This leads
us to invest in companies that exhibit the qualities we think are
important; good growth characteristics with growing earnings,
strong cash flows and reasonable valuations.
The S&P 500 Index returned 11.0% in sterling terms, while
our Company strategy outperformed by 210 bps. The returns from the
broad market were driven by companies with strong momentum
characteristics, whereas those companies which we would define as
of high quality and attractive from a valuation perspective
underperformed. The performance of a portfolio is reflecting in not
only the securities within the portfolio, but also the securities
not held. In our case several large securities that did not meet
our investment thesis found favour with the market and this
negatively impacted our performance.
The large companies' portfolio posted a positive return, but
marginally underperformed the benchmark over the 12 months to the
end of December 2017. This underperformance was mainly driven by
unrewarded stock selection within the consumer staples, health care
and information technology sectors.
Within consumer staples, our overweights in Walgreens Boots
Alliance and CVS were among the largest detractors in the sector.
Shares of both companies fell during the period amid fears that
Amazon may enter the pharmaceutical industry, which would present a
significant headwind for incumbent companies.
More positively, overweight exposure to the information
technology stock Apple buoyed relative returns over the period
driven by surprisingly positive results for its largest revenue
generating product - the iPhone. Most investors expected a large
drop in orders ahead of the launch of the 10th anniversary iPhone
in the second half of the year, which failed to materialise.
Apple's shares remain attractively valued and the next iPhone
upgrade cycle is expected to be the largest yet. Similarly, our
overweight position in Microsoft boosted performance during the
period as the stock rallied on the back of strong earnings, with
revenues and earnings that came in better than expected. Among the
highlights in its earnings announcement was the strong performance
of its cloud computing offering, Azure.
Within information technology, our lack of exposure to Facebook
and the specialist chip company NVIDIA detracted. NVIDIA's shares
rallied on the back of strong earnings results in the second
quarter driven, in part, by high year-on-year growth in their
datacentre and gaming segments. At the same time, an overweight
position in Qualcomm featured among the portfolio's largest
detractors at the individual stock level as the company remained
mired in legal disputes with Apple and the Federal Trade
Commission.
Within the health care sector, overweight positions in the
pharmaceutical stock Allergan and the biotech firms Celgene and
Gilead Sciences weighed on performance, reflecting growth concerns
regarding new products approvals and pricing. We still believe in
their existing products and the future success of their
pipeline.
On the other hand, the portfolio benefited from strong stock
selection in the financials and consumer discretionary sectors.
Here, a greater than benchmark exposure to fast food restaurant
chain operator McDonalds added value as the firm reported
better-than-expected sales results.
Furthermore, an overweight in Home Depot featured among the top
contributors to returns as the stock outperformed in the fourth
quarter driven by its strong execution and market share growth. The
company announced improved revenue, profit and same-store sales
growth figures, propelling its shares higher.
Another bright spot in performance over the period was within
financials. Here, our exposure to MSCI and overweight in Citigroup
buoyed relative returns. MSCI is benefiting from prior acquisitions
which are enabling it to capture a broad range of growth
opportunities. Shares of Citigroup outperformed during the period
as investors cheered the prospects of a stronger capital return
plan given this year's favourable Comprehensive Capital Analysis
and Review (CCAR) results, and interpreted the Treasury
Department's recent white paper as indicating a greater likelihood
of a more favourable regulatory landscape for financials.
In terms of portfolio positioning, we added to our consumer
discretionary and financials sectors, while trimming health care,
telecom services and industrials. Consumer staples is now our
largest overweight followed by financials and consumer
discretionary. On the other hand, we retain our underweight
position in the industrials, real estate and materials sectors, as
we are less excited about their long term growth prospects and
unappealing valuation levels relative to other sectors.
Smaller Companies Portfolio
The smaller companies' portfolio delivered a standout 2017 with
stock selection being materially additive across the majority of
the portfolio in 2017. For the calendar year, the smaller companies
portfolio returned 29.4% in sterling terms which significantly
outpaced the benchmark of the Company. Stock selection in
technology was the top contributing sector as our software &
video game holdings delivered strong growth throughout the year. A
position in video games publisher and distributor Take-Two
Interactive featured among the top contributors as shares in the
company rallied after it reported strong results. Revenues,
earnings and full year guidance all came in above consensus. Market
research data was subsequently released that pointed to digital
revenue for Grand Theft Auto being up over 40% driven by
micro-transactions and users purchasing in-game content.
Health care was also a large driver as a number of our biotech
holdings benefited from outstanding clinical data releases. Here, a
position in Kite Pharma - a clinical stage biopharmaceutical
company which focuses on the development of immunotherapy drugs -
was the top contributor at the individual stock level. Shares in
the company rallied after the announcement of an acquisition by
Gilead Sciences via an all cash offer that equated to a 29%
premium. From a strategic perspective the deal provides Gilead with
a strong foundation in oncology.
Outlook
We continue to believe earnings for the S&P 500 Index will
grow over the next year. Year-over-year comparisons will be more
challenging but tax reform should act as a tailwind to the current
late cycle growth environment. The energy sector has continued to
stabilise and its improving profitability should contribute to
overall earnings. With over 40% of S&P 500 Index earnings
coming from overseas, a weaker dollar will be a boost to foreign
sales in 2018. Inflation should continue to gently rise, helped by
the weaker dollar, higher oil prices and a tightening labour
market. This means that the Fed is likely to stay on track for the
further rate increases expected by the market.
We do not see a material risk of a recession in the near term,
but we continue to monitor a broad range of potential risks that
could represent headwinds for US equity markets. The passage of the
tax reform act removed one risk to the market, but prudent equity
investment will require us to act with flexibility, as the
implications of tax reform, trade policy, inflation and rising
rates could drive rotations among sectors and styles.
Garrett Fish
Investment Manager
22nd March 2018
PRINCIPAL RISKS
The Directors confirm that they have carried out a robust
assessment of the principal risks facing the Company, including
those that would threaten its business model, future performance,
solvency or liquidity. The risks identified and the ways in which
they are managed or mitigated are summarised below.
With the assistance of JPMF, the Risk Committee has drawn up a
risk matrix, which identifies the key risks to the Company. These
are reviewed and noted by the Board. These key risks fall broadly
under the following categories:
-- Market: Market risk arises from uncertainty about the future
prices of the Company's investments. This market risk comprises
three elements - equity market risk, currency risk and interest
rate risk. The Board considers the split in the portfolio between
small and large companies, sector and stock selection and levels of
gearing on a regular basis and has set investment restrictions and
guidelines, which are monitored and reported on by JPMF. The Board
monitors the implementation and results of the investment process
with the Manager. However, the fortunes of the portfolio are
significantly determined by market movements in US equities, the
rate of exchange between the US dollar and sterling and interest
rate changes. This is a risk that investors take having invested
into a single country fund.
-- Investment and Strategy: An inappropriate investment
strategy, poor asset allocation or the level of gearing, may lead
to underperformance against the Company's benchmark index and its
peer companies, resulting in the Company's shares trading on a
wider discount. The Board mitigates this risk by insisting on
diversification of investments through its investment restrictions
and guidelines which are monitored and reported on regularly by the
Managers. JPMF provides the Directors with timely and accurate
management information, including performance data and attribution
analyses, revenue estimates, liquidity reports and shareholder
analyses. The Board monitors the implementation and results of the
investment process with the investment manager, who attends the
majority of Board meetings, and reviews data which details the
portfolio's risk profile. The investment manager employs the
Company's gearing within a strategic range set by the Board.
-- Operational and Cybercrime: Disruption to, or failure of, the
Manager's accounting, dealing or payments systems or the
custodian's or depositary's records could prevent accurate
reporting and monitoring of the Company's financial position. On
1st July 2014, the Company appointed BNY Mellon Trust &
Depositary (UK) Limited to act as its depositary, responsible for
overseeing the operations of the custodian, JPMorgan Chase Bank,
N.A., and the Company's cash flows. Details of how the Board
monitors the services provided by the Manager and its associates
and the key elements designed to provide effective internal control
are included in the Internal Control section of the Corporate
Governance report in the 2017 Annual Report. The threat of cyber
attack, in all its guises, is regarded as at least as important as
more traditional physical threats to business continuity and
security. The Board has received the cyber security policies for
its key third party service providers and JPMF has assured the
Directors that the Company benefits directly or indirectly from all
elements of JPMorgan's Cyber Security programme. The information
technology controls around the physical security of JPMorgan's data
centres, security of its networks and security of its trading
applications are tested by independent reporting accountants and
reported every six months against the AAF Standard.
-- Loss of Investment Team or Investment Manager: The sudden
departure of the investment manager or several members of the wider
investment management team could result in a short term
deterioration in investment performance. The Manager takes steps to
reduce the likelihood of such an event by ensuring appropriate
succession planning and the adoption of a team based approach. The
Board continues to stress to JPMF the importance of retaining the
current investment manager.
-- Share Price Relative to Net Asset Value ('NAV') per Share: If
the share price of an investment trust is lower than the NAV per
share, the shares are said to be trading at a discount. Throughout
2017, the Company's shares traded at a discount. The Board monitors
the Company's premium/discount level and, although the rating
largely depends upon the relative attractiveness of the trust, the
Board will seek, where deemed prudent, to address imbalances in the
supply and demand of the Company's shares through a programme of
share issuance and buybacks.
-- Accounting, Legal and Regulatory: In order to qualify as an
investment trust, the Company must comply with Section 1158 of the
Corporation Tax Act 2010 ('Section 1158'). Details of the Company's
approval are given on page 18. Were the Company to breach Section
1158, it might lose investment trust status and, as a consequence,
gains within the Company's portfolio would be subject to Capital
Gains Tax. The Section 1158 qualification criteria are continually
monitored by JPMF and the results reported to the Board each month.
The Company must also comply with the provisions of the Companies
Act 2006 and, as its shares are listed on the London Stock
Exchange, the UKLA Listing Rules and Disclosure & Transparency
Rules ('DTRs'). A breach of the Companies Act 2006 could result in
the Company and/or the Directors being fined or the subject of
criminal proceedings. Breach of the UKLA Listing Rules or DTRs
could result in the Company's shares being suspended from listing,
which in turn would breach Section 1158. The Directors seek to
comply with all relevant regulation and legislation in the UK,
Europe and the US and rely on the services of its Company
Secretary, JPMF, and its professional advisers to monitor
compliance with all relevant requirements.
-- Political and Economic: Changes in legislation, including in
the US, UK and the European Union, may adversely effect the Company
either directly or because of restrictions or enforced changes on
the operations of the Manager. JPMF makes recommendations to the
Board on accounting, dividend and tax policies and the Board seeks
external advice where appropriate. In addition, the Company is
subject to political risks, such as the imposition of restrictions
on the free movement of capital. The Company is therefore at risk
from changes to the regulatory, legislative and taxation framework
within which it operates, whether such changes were designed to
affect it or not. The Board will continue to keep under review the
impact of the UK's decision to leave the European Union. The
negotiations between the UK and European Union will likely
introduce further currency volatility to the Company's affairs.
Statement of Directors' Responsibilities
The Directors are responsible for preparing the annual report
and accounts in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law, the Directors
have elected to prepare the financial statements in accordance with
United Kingdom Generally Accepted Accounting Practice (United
Kingdom Accounting Standards and applicable law). Under company law
the Directors must not approve the financial statements unless they
are satisfied that, taken as a whole, the annual report and
accounts are fair, balanced and understandable, provide the
information necessary for shareholders to assess the Company's
position, performance, business model and strategy and that they
give a true and fair view of the state of affairs of the Company
and of the total return or loss of the Company for that period. In
order to provide these confirmations, and in preparing these
financial statements, the Directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and accounting estimates that are reasonable and prudent;
-- state whether applicable UK Accounting Standards have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
-- prepare the financial statements on a going concern basis
unless it is inappropriate to presume that the Company will
continue in business
and the Directors confirm that they have done so.
The Directors are responsible for keeping proper accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and to enable them to ensure that
the financial statements comply with the Companies Act 2006. They
are also responsible for safeguarding the assets of the Company and
hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
The accounts are published on the www.jpmamerican.co.uk website,
which is maintained by the Company's Manager. The maintenance and
integrity of the website maintained by the Manager is, so far as it
relates to the Company, the responsibility of the Manager. The work
carried out by the auditor does not involve consideration of the
maintenance and integrity of this website and, accordingly, the
auditor accepts no responsibility for any changes that have
occurred to the accounts since they were initially presented on the
website. The accounts are prepared in accordance with UK
legislation, which may differ from legislation in other
jurisdictions.
Under applicable law and regulations the Directors are also
responsible for preparing a Directors' Report, Strategic Report,
Statement of Corporate Governance and Directors' Remuneration
Report that comply with that law and those regulations.
Each of the Directors, whose names and functions are listed in
the 2017 Annual Report confirm that, to the best of their
knowledge:
-- the financial statements, which have been prepared in
accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards and applicable law),
give a true and fair view of the assets, liabilities, financial
position and return or loss of the Company; and
-- the Strategic Report includes a fair review of the
development and performance of the business and the position of the
Company, together with a description of the principal risks and
uncertainties that it faces.
The Board confirms that it is satisfied that the annual report
and accounts taken as a whole are fair, balanced and understandable
and provide the information necessary for shareholders to assess
the strategy and business model of the Company.
The Board also confirms that it is satisfied that the Strategic
Report and Directors' Report include a fair review of the
development and performance of the business, and the position of
the Company, together with a description of the principal risks and
uncertainties that the Company faces.
For and on behalf of the Board
Dr Kevin Carter
Chair
22nd March 2018
statement of comprehensive income
for the year ended 31st December 2017
2017 2016
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------------------------- -------- -------- -------- -------- --------- ---------
Gains on investments held at fair value through profit
or loss - 97,734 97,734 - 239,839 239,839
Net foreign currency gains/(losses)(1) - 7,493 7,493 - (12,852) (12,852)
Income from investments 19,317 - 19,317 20,533 - 20,533
Interest receivable 177 - 177 77 - 77
-------------------------------------------------------- -------- -------- -------- -------- --------- ---------
Gross return 19,494 105,227 124,721 20,610 226,987 247,597
Management fee (929) (3,715) (4,644) (909) (3,636) (4,545)
Other administrative expenses (653) - (653) (802) - (802)
-------------------------------------------------------- -------- -------- -------- -------- --------- ---------
Net return on ordinary activities before finance costs
and taxation 17,912 101,512 119,424 18,899 223,351 242,250
Finance costs (909) (3,636) (4,545) (803) (3,213) (4,016)
-------------------------------------------------------- -------- -------- -------- -------- --------- ---------
Net return on ordinary activities before taxation 17,003 97,876 114,879 18,096 220,138 238,234
Taxation (2,723) - (2,723) (2,916) - (2,916)
-------------------------------------------------------- -------- -------- -------- -------- --------- ---------
Net return on ordinary activities after taxation 14,280 97,876 112,156 15,180 220,138 235,318
-------------------------------------------------------- -------- -------- -------- -------- --------- ---------
Return per share (note 2) 5.93p 40.67p 46.60p 5.70p 82.66p 88.36p
1 Includes gains and losses on forward currency contracts which
are used to hedge the currency risk in respect of the geared
portion of the portfolio.
Details of the Company's hedging strategy are given in the 2017
Annual Report.
statement of changes in equity
for the year ended 31st December 2017
Called up Capital
share Share redemption Capital Revenue
capital premium reserve reserves(1) reserve(1) Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------- ---------- -------- ----------- ------------ ----------- ----------
At 31st December 2015 14,082 151,850 8,151 622,025 20,592 816,700
Repurchase of shares into Treasury - - - (54,144) - (54,144)
Net return on ordinary activities - - - 220,138 15,180 235,318
Dividends paid in the year (note 3) - - - - (12,658) (12,658)
------------------------------------- ---------- -------- ----------- ------------ ----------- ----------
At 31st December 2016 14,082 151,850 8,151 788,019 23,114 985,216
Repurchase of shares into Treasury - - - (104,877) - (104,877)
Net return on ordinary activities - - - 97,876 14,280 112,156
Dividends paid in the year (note 3) - - - - (12,065) (12,065)
------------------------------------- ---------- -------- ----------- ------------ ----------- ----------
At 31st December 2017 14,082 151,850 8,151 781,018 25,329 980,430
------------------------------------- ---------- -------- ----------- ------------ ----------- ----------
1 These reserves form the distributable reserves of the Company
and may be used to fund distribution of profits to investors via
dividend payments.
statement of financial position
for the year ended 31st December 2017
2017 2016
GBP'000 GBP'000
--------------------------------------------------------- ---------- ----------
Fixed assets
Investments held at fair value through profit or loss 1,070,243 1,068,848
Current assets
Derivative financial assets 1,359 358
Debtors 919 921
Cash and cash equivalents 13,689 10,114
--------------------------------------------------------- ---------- ----------
15,967 11,393
Current liabilities
Creditors: amounts falling due within one year (87,299) (558)
--------------------------------------------------------- ---------- ----------
Net current (liabilities)/assets (71,332) 10,835
--------------------------------------------------------- ---------- ----------
Total assets less current liabilities 998,911 1,079,683
--------------------------------------------------------- ---------- ----------
Creditors: amounts falling due after more than one year (18,481) (94,467)
--------------------------------------------------------- ---------- ----------
Net assets 980,430 985,216
--------------------------------------------------------- ---------- ----------
Capital and reserves
Called up share capital 14,082 14,082
Share premium 151,850 151,850
Capital redemption reserve 8,151 8,151
Capital reserves 781,018 788,019
Revenue reserve 25,329 23,114
--------------------------------------------------------- ---------- ----------
Total shareholders' funds 980,430 985,216
--------------------------------------------------------- ---------- ----------
Net asset value per share 424.3p 381.0p
statement of cash flows
for the year ended 31st December 2017
2017 2016
GBP'000 GBP'000
---------------------------------------------------------------- ---------- ----------
Net cash outflow from operations before dividends and interest (6,558) (3,234)
Dividends received 16,829 17,283
Interest received 166 70
Overseas tax recovered (259) 354
Interest paid (4,596) (4,020)
---------------------------------------------------------------- ---------- ----------
Net cash inflow from operating activities 5,582 10,453
---------------------------------------------------------------- ---------- ----------
Purchases of investments (437,710) (313,586)
Sales of investments 533,956 370,087
Settlement of forward currency contracts 3,073 (11,753)
---------------------------------------------------------------- ---------- ----------
Net cash inflow from investing activities 99,319 44,748
---------------------------------------------------------------- ---------- ----------
Dividends paid (12,065) (12,658)
Repayment of bank loans (3,858) (41,283)
Draw down of bank loans 19,474 44,627
Repurchase of shares into Treasury (104,877) (54,562)
---------------------------------------------------------------- ---------- ----------
Net cash outflow from financing activities (101,326) (63,876)
---------------------------------------------------------------- ---------- ----------
Increase/(decrease) in cash and cash equivalents 3,575 (8,675)
---------------------------------------------------------------- ---------- ----------
Cash and cash equivalents at the start of the year 10,114 18,789
Cash and cash equivalents at the end of the year 13,689 10,114
---------------------------------------------------------------- ---------- ----------
Increase/(decrease) in cash and cash equivalents 3,575 (8,675)
---------------------------------------------------------------- ---------- ----------
Cash and cash equivalents consist of:
Cash and short term deposits 19 10
Cash held in JPMorgan US Dollar Liquidity Fund 13,670 10,104
---------------------------------------------------------------- ---------- ----------
Total 13,689 10,114
---------------------------------------------------------------- ---------- ----------
Notes to the financial statements
for the year ended 31st December 2017
1. Accounting policies
Basis of accounting
The financial statements are prepared under the historical cost
convention, modified to include fixed asset investments at fair
value, in accordance with the Companies Act 2006, United Kingdom
Generally Accepted Accounting Practice ('UK GAAP'), including FRS
102 'The Financial Reporting Standard applicable in the UK and
Republic of Ireland' and with the Statement of Recommended Practice
'Financial Statements of Investment Trust Companies and Venture
Capital Trusts' (the 'SORP') issued by the Association of
Investment Companies in November 2014 and updated in January
2017.
All of the Company's operations are of a continuing nature.
The financial statements have been prepared on a going concern
basis. The disclosures on going concern in the 2017 Annual Report
form part of these financial statements.
The policies applied in these financial statements are
consistent with those applied in the preceding year.
2. Return per share
2017 2016
GBP'000 GBP'000
------------------------------------------------------------ ------------ ------------
Revenue return 14,280 15,180
Capital return 97,876 220,138
------------------------------------------------------------ ------------ ------------
Total return 112,156 235,318
------------------------------------------------------------ ------------ ------------
Weighted average number of shares in issue during the year 240,684,981 266,333,049
Revenue return per share 5.93p 5.70p
Capital return per share 40.67p 82.66p
------------------------------------------------------------ ------------ ------------
Total return per share 46.60p 88.36p
------------------------------------------------------------ ------------ ------------
3. Dividends
(a) Dividends paid and proposed
2017 2016
GBP'000 GBP'000
---------------------------------------------- -------- --------
Dividends paid
Unclaimed dividends refunded to the Company (4) (2)
2016 Final dividend of 2.75p (2015: 2.5p) 6,801 6,728
2017 Interim dividend of 2.25p (2016: 2.25p) 5,268 5,932
---------------------------------------------- -------- --------
Total dividends paid in the year 12,065 12,658
---------------------------------------------- -------- --------
Dividends proposed
2017 Final dividend of 3.25p (2016: 2.75p) 7,510 7,111
---------------------------------------------- -------- --------
All dividends paid and declared in the period have been funded
from the Revenue Reserve.
The dividend proposed in respect of the year ended 31st December
2016 amounted to GBP7,111,000. However the amount paid amounted to
GBP6,801,000 due to shares repurchased after the balance sheet date
but prior to the share register record date.
The dividend proposed in respect of the year ended 31st December
2017 is subject to shareholder approval at the forthcoming Annual
General Meeting. In accordance with the accounting policy of the
Company, this dividend will be reflected in the financial
statements for the year ending 31st December 2018.
(b) Dividend for the purposes of Section 1158 of the Corporation
Tax Act 2010 ('Section 1158')
The requirements of Section 1158 are considered on the basis of
dividends declared in respect of the financial year, shown below.
The revenue available for distribution by way of dividend for the
year is GBP14,280,000 (2016: GBP15,180,000).
2017 2016
GBP'000 GBP'000
---------------------------------------------- -------- --------
2017 Interim dividend of 2.25p (2016: 2.25p) 5,268 5,932
2017 Final dividend of 3.25p (2016: 2.75p) 7,510 7,111
---------------------------------------------- -------- --------
Total 12,778 13,043
---------------------------------------------- -------- --------
The revenue reserve after payment of the final dividend will
amount to GBP17,826,000 (2016: GBP16,003,000).
4. Net asset value per share
2017 2016
GBP'000 GBP'000
--------------------------- ------------ ------------
Net assets (GBP'000) 980,430 985,216
Number of shares in issue 231,085,811 258,573,403
--------------------------- ------------ ------------
Net asset value per share 424.3p 381.0p
--------------------------- ------------ ------------
Status of results announcement
2016 Financial Information
The figures and financial information for 2016 are extracted
from the Annual Report and Accounts for the year ended 31st
December 2016 and do not constitute the statutory accounts for the
year. The Annual Report and Accounts include the Report of the
Independent Auditors which is unqualified and does not contain a
statement under either section 498(2) or section 498(3) of the
Companies Act 2006. The Annual Report and Accounts will be
delivered to the Register of Companies in due course.
2017 Financial Information
The figures and financial information for 2017 are extracted
from the published Annual Report and Accounts for the year ended
31st December 2017 and do not constitute the statutory accounts for
that year. The Annual Report and Accounts has been delivered to the
Registrar of Companies and included the Report of the Independent
Auditors which was unqualified and did not contain a statement
under either section 498(2) or section 498(3) of the Companies Act
2006.
Neither the contents of the Company's website nor the contents
of any website accessible from hyperlinks on the Company's website
(or any other website) is incorporated into, or forms part of, this
announcement.
22nd March 2018
For further information:
Alison Vincent,
JPMorgan Funds Limited 020 7742 4000
ENDS
A copy of the annual report will shortly be submitted to the
National Storage Mechanism and will be available for inspection at
www.morningstar.co.uk/uk/NSM
The annual report will shortly be available on the Company's
website at www.jpmamerican.co.uk where up-to-date information on
the Company, including daily NAV and share prices, factsheets and
portfolio information can also be found.
JPMORGAN FUNDS LIMITED
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SEIFIFFASELD
(END) Dow Jones Newswires
March 22, 2018 04:00 ET (08:00 GMT)
Jpmorgan American Invest... (LSE:JAM)
Historical Stock Chart
From May 2024 to Jun 2024
Jpmorgan American Invest... (LSE:JAM)
Historical Stock Chart
From Jun 2023 to Jun 2024