How to gain exposure to capital growth in the World’s biggest economy - J.P. Morgan Asset Management
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How to gain exposure to capital growth in the World’s biggest economy

Contributor Ian Cowie

 

How to gain exposure to some of the biggest global brands as well as dynamic smaller companies by professional stock selection in the largest economy in the world.

JPMorgan American Investment Trust plc offers a diversified and professionally-managed portfolio of large and small companies, selected in pursuit of capital growth. These include some of the best-known brands in the world, such as Apple, McDonalds and Microsoft.

Following the election of Donald Trump as President, some American stock markets have hit all-time highs and may have further to go if pledges to lower corporate tax rates cause companies to repatriate profits currently held outside America. Despite trading near all-time highs, shares in this large investment trust can still be bought at a discount to their net asset value.

Making great gains in America again

Promises of tax cuts, deregulation and extra spending on infrastructure have helped the Standard & Poor’s 500 index, a broad measure of the American stock market, to hit new all-time highs in 2017. While there is no guarantee this will continue – and share prices can fall without warning - the recovery is not solely based on Presidential promises. Stock market valuations have been supported by the best corporate earnings figures seen in five years.

The S&P 500 has delivered its first double-digit increase in quarterly earnings, year over year, since the fourth quarter of 2011. Blue-chip earnings rose 13.3 per cent a share in the first quarter of 2017. Pricing power for companies has also rebounded with quarterly revenues year over year showing a robust rise of 7.8 per cent — the fastest pace of top-line growth since the fourth quarter of 2011. So there are reasons to hope that the global credit crisis which began in America – when the Wall Street bank Lehman Brothers went bust in 2008 – may also have ended there, as recovery and growth replace recession.

Taking a shine to Apple

America is the home to some of the biggest brands in the world – and some of these companies have strong balance sheets with good prospects of further growth. For example, the technology giant Apple is the most valuable company in the world – as measured by the total value of its shares, which hit 800bn USD in May but strong revenues also recently enabled it to become the biggest dividend payer in the world. In what might be seen as an example of new technology overtaking older businesses, Apple increased its annual distribution to shareholders to 13.2bn USD and displaced the oil giant ExxonMobil as the biggest dividend payer in the world.

Strong earnings are supporting research and development of new products and services as diverse as self-driving cars and augmented reality which could produce further gains for shareholders. In another example of how information technology has become an increasingly important part of the modern economy, the software giant Microsoft is the third biggest dividend payer in the S&P, distributing just over 12n USD a year. Both Apple and Microsoft are among the top 10 holdings in JPMorgan American Investment Trust.

Big burger chain gets bigger

bIg-ticket or expensive items are not the only factors driving the recovery in American stock markets. People will always want to eat and modern lifestyles mean many are short of time but have the cash to pay for fast food. McDonalds is the biggest burger chain in the world and well-placed to benefit from these trends – which are being accelerated by recovery in emerging markets, where demand is rising for affordable treats.

 

Some smaller companies in America also offer prospects for substantial capital growth.

 

Successful price promotions such as 1 USD soft drinks and 2 USD McCafes boosted global like-for-like sales by 4% during the first three months of 2017, beating Wall Street estimates for a 1.1 per cent rise. McDonald’s revenues of 5.68bn USD also exceeded analysts’ forecasts and helped supersize the shares to an all-time high. Despite some criticism of the chain in some quarters, the world shows no sign of losing its appetite for McDonald’s and the shares form part of a balanced portfolio within JPMorgan American Investment Trust plc.

 

Healthy, wealthy and wise

The United States of America is not just the wealthiest country on earth in terms of its total financial assets but also the biggest spender on healthcare. This is likely to continue to grow as more Americans reach advanced ages when the need for healthcare tends to be greater than when people are younger and fitter. As a result, some of the leading medical and pharmaceutical companies in the world are based in America. While the price of some drugs and treatments has attracted controversy recently, the demand for healthcare is unlikely to diminish.

Investors who capitalise medical research and development may continue to do well by doing good. These are among the reasons JPMorgan American Investment Trust plc includes among its top 10 holdings, stakes in Amgen, Gilead Sciences and Humana. This trust can also include substantial exposure to smaller companies, whose names may be less familiar but where the prospects for growth may be greatest. However, not every acorn grows into an oak and smaller companies can involve a greater degree of risk – so fundamental analysis and professional stock selection can add value.

America first for global gains

Many of the corporate giants based in America do business around the world – including most of the examples above. Some smaller companies in America also offer prospects for substantial capital growth. So it makes sense to consider gaining exposure to the world’s biggest economy as part of a diversified portfolio. This strategy would have been likely to generate substantial gains as American stock markets and many of their constituent companies hit all-time highs in 2017 and may continue to do so.

However, there is no guarantee that this will happen. Investment trusts can offer a convenient and cost-effective way to diminish the risk inherent in stock markets by diversification and seek to maximise rewards. Professional fund managers can analyse the balance of advantage as they allocate assets across a range of companies and sectors. This should diminish individual investors’ exposure to setbacks or failure while maximising their exposure to growth opportunities in the world’s leading economy.

Investors should remember that share prices can fall without warning and that you may get back less than you invest. However, investment trusts seek to diminish the risk inherent in stock markets by diversification and professional fund management. There are hundreds of investment trusts to choose from. For more details see the Association of Investment Companies.

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JPMorgan American Investment Trust plc  

JPMorgan US Smaller Companies Investment Trust plc  


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Diversification does not guarantee investment returns and does not eliminate the risk of loss. The companies/securities above are shown for illustrative purposes only. Their inclusion should not be interpreted as a recommendation to buy or sell. J.P. Morgan Asset Management may or may not hold positions on behalf of its clients in any or all of the aforementioned securities. Past performance is not necessarily a reliable indicator of current and future performance.

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