Investment Trust Insights

The sectors to consider for your ISA portfolio this year

As the tax year-end approaches and astute investors wonder where to channel their remaining ISA allowance and pension top-ups, we look at which markets could offer the most potential within the investment trust arena.

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With President Donald Trump back at the helm of the US and bent on a term of radical change and disruption, global stock markets are likely to see some volatile times in the coming year.

Of course, 2024 was less than a smooth ride, with more than 70 national elections held globally1, interest rates remaining higher than expected and geopolitical risks persisting. Despite this, most markets weathered the various challenges reasonably well and the average investment trust generated a share price total return of 13% over the year².

Looking ahead, some investment trust sectors appear set to have a relatively smooth road ahead of them in 2025, while others have potential to surprise on the upside. So, as investors eye their portfolios and wonder where to channel their remaining ISA allowance and pension top-ups in the closing months of this tax year, where might the clever money be heading within the closed-ended fund arena?

North America

Given last year’s strong returns from the US and with Trump now vigorously pursuing his plans to make America great again, it’s hard to keep the US out of the picture.

However, 2024’s impressive 24% returns3 were driven in large part by the tech-focused Magnificent Seven companies. Morningstar research3 shows that 55% of total US market gains in 2024 could be attributed to just eight mega-caps; and these same companies contributed 53% of total market gains in 2023.

Andrew McHattie, publisher of the Investment Trust Newsletter, observes that it therefore may be difficult to build further on those gains in the near term. “US equities are richly valued against historic levels, powered largely by the Magnificent Seven; expectations are high, and any disappointments could lead to some sharp de-ratings,” he warns.

In contrast, he suggests, small and mid-cap US stocks have performed less strongly over recent years and “offer a less heady risk-reward proposition”.

Samir Shah, senior fund analyst at Quilter Cheviot, similarly argues that the US market returns may well be driven by a broader range of contributors this year. “Trusts with an underweight position to the large-cap mega tech stocks should do relatively well,” he agrees.

Additionally, smaller companies not only have a more domestic focus (which could help them prosper under the new regime) but may also feel the benefit of Trump’s plans for lower tax and less business regulation.

JPMorgan American (JAM) draws on the expertise of three J.P. Morgan teams to manage a concentrated ‘best ideas’ portfolio of growth (including selected Magnificent Seven holdings) and value stocks, with the flexibility to add small-cap companies as appropriate.  

As Portfolio Manager Jack Caffrey explains, having this mix “allows us to express our views as to where opportunities exist and gives us flexibility to reposition the portfolio as market conditions change”.

JAM has a strong track record in keeping up with the US’s rising markets, despite being underweight some of the index’s top-performing companies; it has outperformed the benchmark index over both short and long timescales4.

Global

The global sector is typically strongly influenced by the performance of the US market, but its fortunes are less easy to read this year. Trump has been vocal in his plans to introduce tariffs on global imports into the US, and that’s likely to impact the sector if he sees them through.

Either way, JPMorgan Global Growth & Income (JGGI) offers robust global exposure. JGGI has a total return approach, which enables it to invest in a portfolio of high-quality businesses promising superior earnings and faster growth whilst also paying an attractive quarterly dividend from a mix of natural yield and capital.

That strategy has proved a successful one. Despite different market environments over the past five years, JGGI has returned over 15% a year on average, versus 11.3% for the benchmark index, and has outperformed in every calendar year since 20195.

Importantly, the portfolio managers believe that the outlook for profits in 2025 remains strong. “Below the surface, the gap in earnings growth between the megacap technology companies and the rest of the market is narrowing, which could herald a broadening of market returns,” they suggest.

UK

The UK stock market has been out of favour for many years now, but in spite of high hopes in 2024 that investors would embrace the low valuations on offer and come flooding back to embrace it, nothing has really changed.

In fact, as Ryan Lightfoot-Aminoff, an analyst at Kepler Partners, observes, the short-term outlook has, if anything, deteriorated in the face of “economic stagnation and political mismanagement”.

Nonetheless, the quality of many of the businesses listed on the UK stock exchange is self-evident, and while UK investors have stayed away, overseas corporations have seen the value in many UK-listed companies with international revenue streams and have been snapping them up.

The UK’s current unloved status also makes investment trusts a particularly attractive way to access the market for bargain hunters, because as listed companies they themselves are trading at substantial discounts. 

Moreover, while large UK companies look attractively priced compared with counterparts in other countries, small caps are even cheaper. That’s reflected in investment trust valuations: as at 20 January, the UK Small Companies sector was trading on a discount of more than 12%, compared with under 10% for UK All Companies, according to AIC data6.

McHattie therefore sees it as a part of the market that could enjoy a particularly powerful boost if the UK’s fortunes improve.

JPMorgan UK Small Cap Growth & Income (JUGI) provides a balanced route to small-cap exposure. Alternatively, if you prefer mid-cap exposure as an alternative to large caps, The Mercantile (MRC) is a highly regarded trust co-managed by  Guy Anderson and Anthony Lynch, with an excellent track record. It is also still trading at around a 10% discount⁷ to the underlying asset value, in spite of its strong performance, relative to benchmark, over both short and longer term⁸.

Looking ahead, Shah makes the point that the UK’s budget has passed without any material impact to the portfolio’s outlook, “given that, we would expect it to continue to offer a source of alpha generation,” he says.

Many investors, of course, are focused on the income that investment trusts can provide so reliably. The UK has historically been a leading light as far as dividend-seekers are concerned, and JPMorgan Claverhouse’s focus is on finding the large-cap stocks that will deliver both secure payouts and long-term growth.

Not only is it paying out a dividend yield of almost 5% a year⁹, but it’s also ranked as one of the Dividend Heroes of the Association of Investment Companies, having not cut its dividend for more than 50 years¹⁰.

Emerging markets

More adventurous investors have long been drawn to the potential for rapid growth that exposure to less long-established markets can offer, and Lightfoot-Aminoff believes that a global trend towards lower interest rates would benefit these markets.

“In his first term, Trump was very vocal about not wanting interest rates to rise, so he may adopt policies that may support future cuts. This would be a more supportive environment for emerging markets as it would likely reduce US dollar strength.”

Against that, there is his threat of worldwide tariffs. However, this is nothing new for Asia in particular, as the US imposed them in Trump’s first term of office. “Emerging markets are arguably in a better place to deal with their impact than other countries, having gone through the situation before,” Lightfoot-Aminoff suggests.

JPMorgan Asia Growth & Income provides interesting opportunities in that respect – not least because it has recently updated its dividend policy, to pay  a 6% annual dividend (1.5% per quarter)6.

McHattie is less positive on emerging markets, fearing the risk of both tariffs and a strong US dollar, “although there is always scope for a surprise from Chinese economic policy”.

For core broad-based exposure to these regions, JPMorgan Emerging Markets targets high-quality growth companies and is run by the highly experienced Austin Forey. “We’re trying to find great businesses across the market cap spectrum that can compound their value – and hence their shareholder returns – for a long, long time,” Forey explains. “An active buyback programme is in place, which should offer a degree of downside protection,” broker Winterflood observes.

Summary

There will undoubtedly be challenges ahead in this new global environment; but long-term investors with an eye for trusts focused on businesses offering high-quality growth and robust income payments should be well rewarded in due course. 

¹ Statista, January 2025
² Source Association of Investment Companies, 6 January 2025
³ Morningstar, 3 Jan 2025:
4 The Association of Investment Companies (AIC), 20 January 2025
5 As of 23 January 2025: https://am.jpmorgan.com/gb/en/asset-management/per/products/the-mercantile-investment-trust-plc-gb00bf4jdh58
6 Dividend paid by the product may exceed the gains of the product, resulting in erosion of the capital invested. It may not be possible to maintain dividend payments indefinitely and the value of your investment could ultimately be reduced to zero. Dividend payments are not guaranteed.
7 Dividend yield of 4.87% as at 24/01/25:
8 As at 22 January 2025:

Performance data – JPMorgan American Investment Trust plc

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jam-annualised-perf

Investment Objective

JPMorgan American Investment Trust plc aims to achieve capital growth from North American investments by outperformance of the Company's benchmark, the S&P500 Index, with net dividends reinvested, expressed in sterling terms. The Company emphasises capital growth rather than income and when appropriate may have exposure to smaller capitalisation companies. The Company's gearing policy is to operate within a range of 5% net cash to 20% geared in normal market conditions. Gearing may magnify gains or losses experienced by the Company.

Risk Profile

  • Exchange rate changes may cause the value of underlying overseas investments to go down as well as up.
  • External factors may cause an entire asset class to decline in value. Prices and values of all shares or all bonds and income could decline at the same time, or fluctuate in response to the performance of individual companies and general market conditions.
  • This Company may utilise gearing (borrowing) which will exaggerate market movements both up and down.
  • This Company may also invest in smaller companies which may increase its risk profile.
  • The share price may trade at a discount to the Net Asset Value of the Company.
  • The single market in which the Company primarily invests, in this case the US, may be subject to particular political and economic risks and, as a result, the Company may be more volatile than more broadly diversified companies.

Performance data: JPMorgan Global Growth & Income plc

jggi-quarterly-perf
jggi-annualised-perf

Investment Objective

The Company aims to provide superior total returns and outperform the MSCI All Country World Index over the long-term by investing in companies based around the world.  The manager is focused on building a high conviction portfolio of typically 50 - 90 stocks, drawing on an investment process underpinned by fundamental research. Portfolio construction is driven by bottom up stock selection rather than geographical or sector allocation. Currency exposure is predominantly hedged back towards the benchmark. The Company uses borrowing to gear the portfolio within a range of 5% cash to 20% geared under normal market conditions. Gearing may magnify gains or losses experienced by the Company. The Company makes quarterly distributions, that are set at the beginning of each financial year. On aggregate, the intention is to pay dividends totalling at least 4% of the NAV as at the end of the preceding financial year.

Risk Profile:

  • Exchange rate changes may cause the value of underlying overseas investments to go down as well as up.
  • Investments in emerging markets may involve a higher element of risk due to political and economic instability and underdeveloped markets and systems. Shares may also be traded less frequently than those on established markets. This means that there may be difficulty in both buying and selling shares and individual share prices may be subject to short-term price fluctuations.
  • Where permitted, a Company may invest in other Investment Funds that utilise gearing (borrowing) which will exaggerate market movements both up and down.
  • This Company may use derivatives for investment purposes or for efficient portfolio management.
  • External factors may cause an entire asset class to decline in value. Prices and values of all shares or all bonds and income could decline at the same time, or fluctuate in response to the performance of individual companies and general market conditions.
  • This Company may utilise gearing (borrowing) which will exaggerate market movements both up and down.
  • This Company may also invest in smaller companies which may increase its risk profile.
  • The share price may trade at a discount to the Net Asset Value of the Company.

Performance data JPMorgan UK Small Cap Growth & Income plc

jugi-quarterly-perf
jugi-annualised-perf

Investment Objective

The Company's objective is to achieve capital growth from UK listed smaller companies and a rising share price over the longer term by taking carefully controlled risks. The Company has the ability to use borrowing to gear the portfolio within the range of 10% net cash to 15% geared in normal market conditions. Gearing may magnify gains or losses experienced by the Company.  The Company makes quarterly distributions, that are set at the beginning of each financial year. On aggregate, the intention is to pay dividends totalling at least 4% of the NAV as at the end of the preceding financial year.

Risk Profile

  • External factors may cause an entire asset class to decline in value. Prices and values of all shares or all bonds and income could decline at the same time, or fluctuate in response to the performance of individual companies and general market conditions.
  • This Company may utilise gearing (borrowing) which will exaggerate market movements both up and down.
  • This Company invests in smaller companies which may increase its risk profile.
  • The share price may trade at a discount to the Net Asset Value of the Company.
  • The single market in which the Company primarily invests, in this case the UK, may be subject to particular political and economic risks and, as a result, the Company may be more volatile than more broadly diversified Company's.
  • Companies listed on AIM tend to be smaller and early stage companies and may carry greater risks than an investment in a Company with a full listing on the London Stock Exchange.

This is a marketing communication and as such the views contained herein do not form part of an offer, nor are they to be taken as advice or a recommendation, to buy or sell any investment or interest thereto. Reliance upon information in this material is at the sole discretion of the reader. Any research in this document has been obtained and may have been acted upon by J.P. Morgan Asset Management for its own purpose. The results of such research are being made available as additional information and do not necessarily reflect the views of J.P. Morgan Asset Management. Any forecasts, figures, opinions, statements of financial market trends or investment techniques and strategies expressed are unless otherwise stated, J.P. Morgan Asset Management’s own at the date of this document. They are considered to be reliable at the time of writing, may not necessarily be all inclusive and are not guaranteed as to accuracy. They may be subject to change without reference or notification to you. It should be noted that the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Changes in exchange rates may have an adverse effect on the value, price or income of the products or underlying overseas investments. Past performance and yield are not reliable indicators of current and future results. There is no guarantee that any forecast made will come to pass. Furthermore, whilst it is the intention to achieve the investment objective of the investment products, there can be no assurance that those objectives will be met.

J.P. Morgan Asset Management is the brand name for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. To the extent permitted by applicable law, we may record telephone calls and monitor electronic communications to comply with our legal and regulatory obligations and internal policies. Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance with our EMEA Privacy Policy www.jpmorgan.com/emea-privacy-policy. Investment is subject to documentation. The Annual Reports and Financial Statements, AIFMD art. 23 Investor Disclosure Document and PRIIPs Key Information Document can be obtained in English from JPMorgan Funds Limited or at .

This communication is issued by JPMorgan Asset Management (UK) Limited, which is authorised and regulated in the UK by the Financial Conduct Authority. Registered in England No: 01161446. Registered address: 25 Bank Street, Canary Wharf, London E14 5JP.

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