Jonathan Davis of the Money Makers Investment Trust Podcast interviews Alexander Fitzalan Howard, Portfolio Manager of JPMorgan European Growth & Income. Alexander covers the strength of European stock markets since Donald Trump’s return to power, the Trust’s dividend policy, which has proved popular with income-seeking investors, and how a closed-end structure benefits both portfolio managers and investors.

Europe-focused investors and fund managers alike have been through the mill recently, with regional markets careering wildly on the back of the Trump administration’s ever-shifting tariff regime.

Even before the US president’s so-called Liberation Day on 2 April, significant change was afoot in Europe, not least as its governments faced up to the reality that they must start to take greater responsibility for the region’s defence capabilities.

At the same time, political upheaval and stalling economic growth in Germany, historically the powerhouse of the European Union, has been adding to widespread uncertainty. 

But as Alexander Fitzalan Howard, Portfolio Manager of investment trust JPMorgan European Growth & Income (JEGI) for the past 20 years, observes: “Political crises across Europe are quite normal; the corporate world tends to move on and has navigated them pretty well”.

Certainly, notwithstanding the latest disruptions, European markets have performed relatively strongly in recent months compared with the US: the MSCI Europe index is down only 2% year to date, versus almost a decline of almost 9% for the MSCI North America index (to 14 April)¹.

European economies have been buoyed by rising real incomes, low unemployment and growing consumer confidence, says Fitzalan Howard. The US, meanwhile, has suffered draconian cost-cutting in the public sector, which is likely to impact negatively on both social security and employment figures in the short term.

Are current events the catalyst for change towards European markets?

“The big difference, though, is that European markets have long been valued much more cheaply, and that differential has been getting wider,” he explains. “These events could finally be a catalyst for change and the continuing rotation away from the US and towards Europe.”

As a stock-picker managing investors’ money for the long term, Fitzalan Howard stresses that the key is to ignore the macroeconomic and geopolitical noise and focus on the qualities and strengths of individual companies.

For JEGI, the strategy to meet the Trust’s investment objectives is to build a core portfolio of robust companies that will provide “consistent, incremental and ideally repeatable performance, regardless of market conditions”. The success of that strategy is reflected in the Trust’s outperformance of its benchmark over one, three, five and 10 years.²

As Fitzalan Howard stresses, unlike some of its more volatile peers in the AIC Europe sector, it means JEGI won’t shoot the lights out when markets are powering ahead; but conversely, nor will performance implode when times get tough.

Instead, the emphasis is on a ‘steady Eddie’ approach incorporating balance, diversity and risk management. A combination of growth and value-focused stocks is central to JEGI’s resilience in that respect, the manager adds. The latter have come back into favour in recent years, after a long time in the wilderness, and “have done us very well”.

Quarterly dividends are popular with investors

In addition, the board aims to reward investors with a 4% dividend yield (based on the NAV value at the end of the previous financial year), paid quarterly. The enhanced dividend policy was introduced by the JEGI board about three years ago³ and has proved popular with investors.

Importantly, he adds, that ability means the team is not obliged to prioritise income in its investment decisions. “Because we invest on a total return basis, we don’t have to chase income – we can carry on investing as we see fit, which makes my life a lot easier.”

More broadly, Fitzalan Howard is a firm believer in the structural ability of investment trusts to enhance fund performance over time. Dividend flexibility is one aspect of that, but the capacity to gear, or borrow to invest, is another valuable consideration. Gearing, however, carries its own increased risks if the trust portfolio were to fall in value.

Over the long term markets tend to rise, making gearing an attractive option in principle – but it does increase portfolio volatility, and most managers find it notoriously difficult to successfully time its application or removal.

The JEGI team and board therefore decided to introduce a low level of permanent gearing - between 5% and 8% of NAV. “It’s only a modest amount because we don’t want market volatility from gearing to undermine returns from stock selection, which is where we can add value,” Fitzalan Howard explains.

An additional plus point for the closed-ended structure is the fact that because trusts are listed companies with a fixed number of shares, managers do not have to worry about accommodating the flow of investors’ cash into or out of their fund. For Fitzalan Howard this means he and the team are free to invest an element of the portfolio, currently around 10%, in interesting but less liquid smaller stocks.

Not all the world’s best businesses are in the US, contrary to what many people think

Which sectors within the European market is the team currently finding most opportunities in?

“At the end of 2024 we were pretty exposed to financials, and also to cyclical stocks such as retailers and media stocks, and we were underweight more defensive areas such as consumer staples,” he notes. “This year, I’d say we have increased our exposure to financials, but we’re holding a bit less cyclical stock and more staples.”

European banks are a key area for the portfolio, having been dumped wholesale in the years after the Great Financial Crisis. “Banks have restructured their balance sheets and are now delivering significant returns on invested capital and returning profits to investors through dividends and share buybacks – yet they have been incredibly cheap and valuations still look very attractive.”

Overall, adds Fitzalan Howard, the team is looking for companies that are cheaper, better quality (measured by return on invested capital), and have more momentum (measured by earnings revisions) than the wider market.

The current environment provides plenty of opportunities. “Not all the world’s best businesses are in the US, contrary to what many people think. Europe has genuinely world-leading companies in areas such as semi-conductors and luxury goods, which can compete on at least equal terms with the US, but have much better valuations,” he says.

Moreover, the macro environment is shifting. Although tariff uncertainties could make exports to the US tricky in the short term, the signs are that over the longer term Europe could be well set to enjoy a period of rising economic prosperity – and JEGI’s focus on quality at a sensible price should stand it in very good stead.

¹ MSCI Indices as at 14 April 2025

² J.P. Morgan Asset Management. Data to 30.04.25. Past performance is not a reliable indicator of current and future results.

Source: J.P. Morgan Asset Management/Morningstar. Net asset value performance (NAV) data has been calculated on a NAV to NAV basis, including ongoing charges and any applicable fees, with any income reinvested, in GBP.

NAV is the cum income NAV with debt at fair value, diluted for treasury and/or subscription shares if applicable, with any income reinvested. Share price performance figures are calculated on a mid market basis in GBP with income reinvested on the ex-dividend date. The performance of the company's portfolio, or NAV performance, is not the same as share price performance and shareholders may not realise returns which are the same as NAV performance.

Benchmark Source: MSCI. Neither MSCI nor any other party involved in or related to compiling, computing or creating the MSCI data makes any express or implied warranties or representations with respect to such data (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of such data. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved, in or related to compiling, computing, or creating the data have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages. No further distribution or dissemination of the MSCI data is permitted without MSCI's express written consent.

Comparison of the Company's performance is made with the benchmark. The benchmark is a recognised index of stocks which should not be taken as wholly representative of the Company's investment universe. The Company's investment strategy does not follow or track this index and therefore there may be a degree of divergence between its performance and that of the Company.

On 26/03/13 the benchmark for the Trust was changed from FTSE All World Developed Europe (ex UK) Index to MSCI Europe ex UK Index.

³ 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.
 

Summary Risk Indicator:

The risk indicator assumes that you keep the product for 5 years.

Investment Objective

The Company aims to provide capital growth and a rising share price over the longer term from Continental European investments by out-performance of the benchmark by taking carefully controlled risks through an investment method that is clearly communicated to shareholders. The Company has the ability to use borrowing to gear the portfolio within the range of 10% net cash to 20% geared in normal market conditions. Gearing may magnify gains or losses experienced by the Company. The Company pays four dividends per financial year in July, October, January and March and calculated as 4% per annum based on the NAV as at close of business on 31st March of the preceding financial year.

Key Risks

Exchange rate changes may cause the value of underlying overseas investments to go down as well as up.

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.

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 www.jpmam.co.uk/investmenttrust. 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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