JPMorgan American Investment Trust plc | JAM
US equities, hand-picked by experts
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Wider valuation and performance dispersion, elevated market concentration and potentially higher-for-longer interest rates underscore the importance of an active approach to engage opportunities and manage risks in the US stock market.
Looking beyond valuations
A common refrain about investing in US stocks is valuations. The valuation of the S&P 500 index appears relatively extended compared to its own history and other regional markets, trading at around 21x forward price-to-earnings (P/E) at the end of March, which was meaningfully above its past 15-year average. This valuation compares unfavourably to equity markets in Europe, Asia and Japan, and across emerging markets, where P/E valuations are closer to their respective past 15-year averages.
Yet the headline US valuation figure belies the fact that there is wide dispersion in valuations within the S&P 500 index itself. There is a particularly wide divergence between the valuations of the top 10 largest constituents of the index and its remaining members1.
The higher valuation of the overall index can be explained by the rising concentration of the market in its 10 largest stocks by market capitalisation. Accounting for over a third of the overall index,2 the ebb and flow of these 10 stock names could affect headline numbers, potentially masking interesting opportunities below the surface.
The collective influence of the 10 largest stocks is not insignificant. While the S&P 500 index climbed 24% in 2023, it was a narrow-breadth rally with the top 10 stocks accounting for about 86% of the annual price return.3
Staying active to differentiate opportunities
Yet in the first quarter of 2024, we’ve observed a dispersion in the performance of the 10 largest US stocks, with some names scaling new heights while others started to struggle.4 Coupled with the wide dispersion of valuations within sectors, an active investment approach could be useful to seek out mispriced opportunities in the US market.
Moreover, a changing macroeconomic environment marked by higher-for-longer interest rates, a higher cost of capital and elevated geopolitical risks could present challenges for various sectors and companies – some more so than others – and invariably create potential winners and losers. This backdrop, characterised by index concentration, valuation and performance dispersion, and fast changing economic conditions underscores the importance of a robust and active investment process to help manage risks and differentiate opportunities from the bottom up. An active approach supported by a robust bottom-up fundamental research process, can be useful to uncover lesser known, higher quality names that could present opportunities for long-term returns.
JPMorgan American Investment Trust (JAM) uses a systematic, disciplined and rigorous fundamental research process to seek out high conviction ideas, across both the growth and value investment universes.5 On the growth side of the portfolio, JAM seeks out durable franchises with large and/or growing addressable markets, sustainable competitive advantages and robust management teams. On the value side, JAM seeks out durable businesses with solid cash flows and attractive valuations.
With its focus on identifying high quality, durable franchises across sectors, backed by the expertise of dedicated US growth and US value investment teams, JAM’s 40-stock portfolio offers attractive opportunities for investors looking to gain access to the long-term growth potential of the US stock market.