The JPMorgan American Investment Trust (JAM) aims to provide its shareholders with capital growth by investing in a concentrated portfolio of high quality US shares that have the potential to outperform the S&P 500 Index. Over 90% of the trust’s assets are invested in approximately 40 large cap stocks, split between growth and value names. The balance is allocated to a small cap growth portfolio, which should provide a kicker to performance when growth stocks are in the ascendency.
The main driver of long-term performance has been successful stock selection by JAM’s very experienced management team, in terms of both the stocks they chose to hold, and those they’ve chosen to avoid.
The portfolio allocation decisions made by JAM’s managers since the onset of the pandemic provide a great illustration of their stock picking skills. In the early months of the pandemic, the managers were quick to increase the portfolio’s exposure to stocks that were set to benefit most from society’s increased reliance on technology to work, shop and provide entertainment. When the valuations of many of these stocks began to look excessive in late 2020, the managers started to take profits. They reduced the portfolio’s growth exposure in favour of more cyclical and value names in sectors such as financials, real estate, healthcare and energy, which they correctly predicted would outperform as economies reopened.
JAM’s managers maintained the large cap portfolio’s value tilt during 2022. While most of the market declined last year as higher interest rates increased the risk of recession, value stocks outperformed growth names by a significant margin.
All these decisions – firstly overweighting growth stocks as they outperformed in the first year of the pandemic, then switching into value names that outpaced growth during the subsequent economic recovery - have contributed positively to JAM’s relative returns in recent years.
This active positioning should further support returns during 2023. For example, JAM’s largest overweight is in financials, which should benefit from a higher interest rate environment. Holdings include Bank of America, Capital One and Berkshire Hathaway. JAM’s largest underweights are in consumer staples, where the managers struggle to find attractive investments from either a growth or value perspective, and in Information Technology. In terms of the latter, the portfolio is neutral on several of the highest profile growth names, such as Alphabet (Google) and Microsoft, while underweight Apple and ‘legacy technology’ names such as Oracle, IBM and Intel. 1
Despite their general wariness about growth stocks, JAM’s managers are active investors who are constantly searching for the best ideas on offer in the market. They believe that it is an especially interesting time at present, as 2022’s sharp market sell-off has created opportunities in both the growth and value parts of the market. From a growth perspective, the valuations of many stocks are back at historically attractive levels. For example, the managers have been adding to their position in Amazon due to its low valuation, competitive advantage and the fact that it is the only one of the big tech companies focused on rationalising its cost base and maximising profitability. They also like Palo Alto, a leader in cyber security software, whose revenues are forecast to grow 20% a year over the next few years, as companies seek to protect themselves from mounting cyber threats.
The managers are also very excited about the US’s transition to renewable energy. In their view, portfolio holdings such as Solar Edge, a global leader in smart energy technology, Tesla, a manufacturer of electric vehicles, and Quanta Services, a provider of energy transmission and distribution infrastructure, are all well-positioned to benefit from this structural shift. Quanta Services is a particular favourite and the managers have been building exposure accordingly. They feel the market has underestimated this company and the size of its market opportunity, as the US is forced to upgrade its aging grid to meet the challenges of storing and distributing renewable energy.
The pharmaceuticals sector offers further interesting opportunities in both growth and value stocks. On the growth side, the managers’ favourite names include Intuitive Surgical, which manufactures medical robotics, Regeneron, a medical biotech company, and DexCom, which produces continue glucose monitoring systems. On the value side, they like drug producers Abbvie and Bristol Myers Squibb, and they will look to add to JAM’s exposure to this sector if other interesting opportunities arise.
JAM’s managers have the scope to use gearing to amplify market exposure where they believe it is justified. Their confidence in the longer-term market outlook is reflected in the fact that portfolio gearing has been rising steadily over the past year. As per the Company’s factsheet, gearing stood at 5.8%2 as at 31 January 2023.
For investors seeking exposure to the best ideas in the US market, JAM offers an actively managed, concentrated and liquid portfolio of the highest quality US growth and value names at a very competitive fee. Although, no guarantee, we feel that the trust’s strong track record attests to the stock selection skills of its highly experienced management team.
The JPMorgan American Investment Trust (JAM) is a large, actively managed investment trust investing in the core US stock market. Investors benefit from the strength of our large, locally based investment team, which has a proven record of finding the most attractive US stocks.