JAM aims to achieve capital growth from US investments by outperforming the S&P 500. The trust comprises a concentrated portfolio of around 40 large cap stocks, which represent about 90% of the total portfolio, with the balance invested in small cap growth companies intended to boost performance when growth stocks are outperforming. The trust is run by three very experienced managers, who between them posses an average of 33-years between them.
JAM has a fundamental bottom-up approach to stock selection that is not benchmark driven. Investors tend to adopt either a growth or value-oriented style, JAM’s large cap portfolio is instead spread across both growth and value names. This allows the managers to seek out the best, highest quality investment ideas across the US market, regardless of their growth or value characteristics.
For JAM’s managers, high quality means many things. At the highest level, all JAM’s carefully selected holdings tend to be the best in class, with strong and sustainable competitive advantages, good, experienced management teams and top line financial fundamentals, especially robust and resilient cash flows. In addition, value-oriented holdings tend to be undervalued relative to the quality of their franchises, while growth companies all possess large, underappreciated multi-year growth opportunities. At any time, the split between growth and value stocks is limited to 60/40, in either direction.
JAM’s position in Hubbell is a good example of a business with a long growth runway. Hubbell is a leading producer of electrical products, including transmission and distribution equipment used by utility companies. Demand for electricity and related infrastructure is set to grow rapidly, underpinned by the growing popularity of electric vehicles and the transition to renewable, clean energy sources such as solar power. Yet US utility companies have underinvested in their grids for years, and they will need to implement major, multi-year investment programs to meet future demand on their systems. Hubbell is ideally placed to supply the equipment needed for the US’s energy infrastructure upgrade, although JAM’s managers believe the market does not fully appreciate the magnitude and duration of this opportunity, nor its positive implications for Hubbell’s growth prospects.
JAM’s managers believe now is a particularly exciting and interesting time for growth investors, as the sell-off in growth names over the past couple of years has created many opportunities to acquire hi-quality businesses, especially tech companies, at very reasonable valuations. NVIDIA has been one such opportunity. This company provides graphics and networking solutions to gaming companies and various other businesses. It is a lead producer of graphics processing units (GPUs), which have multiple applications, including within the artificial intelligence (AI) value chain. Increased investor interest in AI, including from venture capitalists, combined with an expected surge in demand for AI applications within businesses, prompted JAM’s managers to open a position in December 2022 and they have since been building up exposure.
The managers have also increased JAM’s weighting in Amazon.com, the e-commerce company. The growth stock sell-off pushed Amazon’s stock price down to a more attractive valuation, which was especially appealing to JAM’s managers as they believe the company has never been stronger, and still has significant long-term growth potential. Amazon used the pandemic to cement its competitive advantage, becoming the ‘go-to’ source for myriad consumer goods. At the same time, it strengthened its customer focus and distribution and delivery infrastructure and monetised its retail business via the sale of advertising. Amazon’s cloud services are also likely to see years of strong demand as businesses and governments move their logistics, services and administration onto the cloud.
Financial markets are always vulnerable to unexpected events such as the recent turmoil in the global banking system. However, JAM’s managers expect their focus on the highest quality companies to dampen drawdowns during bouts of volatility for the portfolio during bouts of volatility. For example, the trust holds only high-quality, blue-chip banks such as Bank of America and regional player M&T Bank, which have very strong deposit and asset bases, and such well-capitalised banks are likely to benefit from a flight to quality during uncertain times.
The effectiveness of JAM’s style balanced, quality-focused approach which invests in both growth and value companies, is evidenced by the trust’s performance track record. In the three years to end-February 2023, JAM’s average annualised return has been 16.4% in in NAV terms, outpacing the S&P 500 by 250 basis points.1
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