Investors in the JPMorgan Global Growth & Income plc (JGGI) will have more than doubled their money since the current portfolio management team took the helm in 2019—and enjoyed cumulative excess returns of 46% over the MSCI All Country World Index benchmark.¹ Annualised returns have been equally impressive; JGGI returned 11.55%. 14.46% and 14.81% over three, five and 10 years, respectively—more than three percentage points greater than the benchmark over all time periods.

While shareholders may be impressed with the magnitude of the alpha produced, they may be equally pleased by the manner in which it has been delivered. During the same time period, JGGI strongly outperformed the benchmark when the returns of companies in growth sectors, such as technology, dominated performance; it also outperformed in periods when more cyclical value sectors, such as energy and financials, drove equity market returns. The trust has achieved positive excess returns across roughly 90% of the sectors it invests in.

Shifting gears: High-growth cyclical and low-growth defensive stocks

Currently, global equity valuations are roughly around the long-term average price-to-earnings (P/E) ratio. That means they’re not cheap, but also not expensive in the context of historical valuations.

However, the J.P. Morgan long-term P/E global valuation spread—the valuation of the 20% most attractive vs. the 20% most overvalued stocks—has widened to a level just under a stressed environment, such as the dot-com bubble bursting in 2000 or the Covid-19 pandemic in 2020.  The dislocation reflected in the valuation spread signals an attractive opportunity to find high-quality stocks at potentially lower valuations.

In the current environment, the portfolio has a defensive tilt because valuations of defensive stocks have not looked this attractive in the past 15 years. JGGI has positions in a number of consumer companies, especially in Europe, including Nestle and Heineken. In the US, JGGI holds several utilities companies that could benefit from increasing power demand as data centres are connected to the electrical grid.

JGGI is also overweight in growth stocks, with much of that positioning in high-growth cyclical stocks related to the semiconductor cycle. Currently, semiconductors are in a cyclical downturn but as the industry moves into cyclical recovery, growth is likely to be even stronger due to AI-related demand. In addition, while capital intensity has been high in this sector as companies build out capacity to meet AI demand, it is likely to decline from here, and free cash flow generation should improve. We believe that combination of pricing power and higher volumes makes these stocks highly attractive for the long term.  

Avoiding roads with speed bumps

Some companies that benefited in recent years from higher interest rates, inflation or supply shortages are now likely to see profit margins decline. JGGI is meaningfully less exposed to these lower-growth cyclical types of companies. For example, many financial companies and banks tend to have higher margins when interest rates are high; as rates start to fall this is likely to have a negative impact on profits. If rates stay relatively high, profit margins may still fall because credit defaults are likely to rise.

Another area where the portfolio has less exposure is the consumer cyclical sector, such as autos. During the supply shortages of the pandemic, profit margins for many auto companies doubled, but with supply chains and production normalising, profit margins are coming back down.

Expertise behind the wheel

JGGI is a concentrated, unconstrained portfolio, investing in the investment team’s 50 best ideas. Investments are made across any sector or equity market globally, without a bias towards growth or value ideas. The portfolio managers partner with J.P. Morgan Asset Management’s highly experienced research team of 80 analysts worldwide, who have, on average, 19 years of experience.

The resulting portfolio features companies with three characteristics: superior quality of earnings, faster earnings growth than the benchmark average (which is important because these companies have historically outperformed, especially in downturns); and normalised free cash flow yields that are similar to the market.

To emphasise how selective the portfolio is, less than 3% of the 2,500 companies covered by J.P. Morgan Asset Management’s research team have all three of these characteristics. Now that’s a best ideas portfolio.

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.

Prior to the 01/07/08 benchmark was the MSCI World Index (£).