Hidden gems, tech leaders and brands so famous they've been forgotten: all have met the exacting scrutiny of J.P. Morgan Asset Management analysts to earn their places on the Global Growth & Income portfolio.
Leading-edge monopoly
In the 1980s, ASML operated from a leaky shed in the Netherlands. Today it’s a global innovation leader, reporting net annual sales of €14bn in January.1 Its latest product has paved the way for 5G technology and faster cloud computing; its role in the complex semiconductor sector may explain why, despite its significance, it has evaded the radar of many investors.
ASML is, however, a favoured stock of JP Morgan Global Growth & Income (JGGI). So is ASML’s customer and fellow acronym, TSMC – the Taiwan-based semiconductor manufacturer. Both companies enjoy “a monopoly of the leading edge”, explains Tim Woodhouse, portfolio manager at JGGI.
ASML’s extreme ultraviolet lithography is essential to the work of every brand in the tech world, from Intel to Samsung, Woodhouse points out. “It’s an incredible example of investing in a technology that means you are so far ahead of anybody else, so core to any kind of technological progress, that there isn’t really a choice for anyone other than to invest in your machines,” he says.
Because ASML continues to innovate and to invest in its research and development, it can maintain such a monopoly – and remain a sound investment – over many years. For the same reason, JGGI’s emerging markets team has owned TSMC for several decades.
Focus on the future
Such potential longevity is all too easily missed by standard investment analysis, with its focus on short-term prices. That approach can fail to pick up the effect of a firm’s investment in research and development or new acquisitions: “Those future returns get underestimated in high-quality businesses, and that kind of business does compound over time,” says Woodhouse.
Unconstrained by geography or sector, JGGI analysts are free to find firms with the best prospects and the capacity to achieve them. It’s those experts’ local presence across the world, powered by a $150m annual research budget that equips the fund with the kind of detailed insight it needs. “We want our analysts to know these companies better than anybody else,” Woodhouse says.
Tech giants keep growing
That kind of knowledge enabled JGGI to make the right call on Amazon – written off by many in its early days as a loss-maker with no profit potential. In fact, its unique proposition and the barriers to entry for competitors were signs of the company’s potential to swell to the behemoth of today. From JGGI’s perspective, it still has a long way to grow, not least in its public cloud proposition.
Another tech giant, Alphabet (the parent company of Google), features strongly on the JGGI portfolio for similar reasons. Its investments in wider activities – including Verily, its healthcare AI business, and Waymo, its autonomous driving project – are compelling propositions as investments and for the future of society, says Woodhouse.
The ESG factor
JGGI’s projections about businesses’ long-term prospects include a robust focus on environmental, social and governance issues. Forty criteria are examined, from a company’s vulnerability to greenhouse gas regulations to its labour relations and the diversity of its board. Good performance and progress in these areas suggests business sustainability.
One outstanding example on the JGGI portfolio is the Danish firm Ørsted – not just a growing player in the offshore wind market, but ranked as the world’s most sustainable energy company for three consecutive years. “Businesses like Ørsted have developed precisely because of the desire to find renewable sources of energy. Now they’re a leader in offshore wind, winning contracts in the US and really driving that change,” Woodhouse enthuses.
Still the real thing
But JGGI’s focus goes far beyond fast-growing tech firms. It can extend to strong, stable businesses that continue to provide value. Coca-Cola, for example, is so ubiquitous as to be overlooked. But Woodhouse points to the competitive advantage of its extensive distribution capabilities, as well as its constant drive to create new products, such as premium bottled water brands, and to grow new markets.
“Coca-Cola has been forgotten, but they generate a very good dividend yield at this point,” he says. “The assumption is that Coke is global and everybody knows what it is, but in fact they are set to make pretty solid growth in emerging markets. They really do have what we think is an important future.”
Exhibit A: Coca Cola – Diversified revenue and innovation
Competitive advantage
Besides market data, JGGI’s analysts take into account even less tangible factors, such as powerful marketing ability. That’s the case for luxury goods conglomerate LVMH. Woodhouse sees demand for luxury products continuing to grow worldwide, but it’s LVMH’s unique approach to promoting its brands that he values in the company.
“LVMH had acquired Tiffany, which might have been the gold standard for jewellery 20 years ago. After five years of being owned by LVMH, that might be the case again,” he suggests. “That ability to take brands, constantly refresh them and drive new growth is something we have to understand as a competitive advantage.”
This forensic approach to business analysis, combined with its diversified, no-borders approach, help to explain how JGGI consistently pics winners. It adds up to a attractive proposition for investors seeking growth as well as income.
1 https://www.asml.com/en/news/press-releases/2021/asml-reports-eur-14dot0-billion-net-sales-and-eur3dot6-billion-net-income-in-2020
