The focus on the biggest stocks and technology companies creates opportunities across many areas of the market that will also benefit from a strong US economy.
Technology and the top 10
In the US equity market, the big got bigger in 2025. The top 10 stocks in the S&P 500 index reached a record weight of over 40%1 while the technology sector—which continues to represent about one-third of the S&P 500’s market capitalisation—was one of the few sectors to outperform the index.
Robust earnings growth for many technology and communications services companies supported the strong performance of their stocks. At the same time, technology-related spending significantly boosted the broader economy—especially as many other areas, such as manufacturing, remained lacklustre. As a result, the US economy continued to grow but earnings growth did not broaden out as much as expected across other sectors.
Unusual underperformance of high-quality stocks
In addition to narrow leadership from the largest companies in S&P 500 and technology stocks, the US equity market also had one of the sharpest low-quality and high-beta stock rallies in decades. As investors chased exposure to artificial intelligence (AI) companies and other popular stocks, high-quality companies—those with robust balance sheets, earnings and returns on equity—had one of their worst performance stretches in decades. The same pattern played out within the small cap universe.
This extraordinary underperformance of high-quality stocks has been a headwind to J.P. Morgan Asset Management’s US equity strategies, which seek to invest in higher-quality companies that have historically outperformed over the long term. We believe that the low-quality trend is unlikely to persist.
Our US equity investment trusts, JPMorgan US Smaller Companies plc (JUSC) and JPMorgan American plc (JAM) offer investors different ways to access the US equity market with an active approach.
JUSC: Small cap diversification
One key advantage of US small caps is diversification—from the S&P 500 index as well as within the US small cap universe. JUSC tends to own around 95 stocks, typically with no position exceeding 2.5% of the portfolio. Large cap managers routinely have to own positions that are 5%, 6% and 7% of the portfolio just to take neutral positions in NVIDIA, Microsoft and Alphabet, respectively. While the technology sector now makes up almost a third of the S&P 500 index, its weight is less than half that in the Russell 2000 index.
One of the interesting small cap technology companies in the JUSC portfolio is MACOM Technology, a semiconductor company with diversified end markets in industrials, defence, 5G communications and data centers.
The portfolio is currently overweight the financials and industrials sectors, where the investment team is expecting earnings recovery and finding attractive opportunities.
Evercore is an independent investment bank with a strong brand and diverse revenue stream that is benefiting from a pickup in activity merger and acquisition activity. MSA Safety is an industrial company that manufactures safety products.
JUSC’s focus on high-quality companies and risk is important as close to 40% of companies in the US small cap universe are not profitable. The portfolio tends to own few health care companies, given the dominance of unprofitable biotechnology companies in the sector, and is also modestly underweight the technology sector.
JAM: Concentrated growth and value portfolio
JAM takes a different approach to investing in US equities. The concentrated portfolio of 40 large cap stocks combines the best ideas from J.P. Morgan Asset Management’s growth and value investing teams. The trust also holds a small position in small cap stocks and is currently about 5% geared.
Risk management and position sizing are key, with the team seeking to take active positions only where they have a differentiated view. For example, the portfolio’s roughly 30% weight to technology stocks is actually a modest underweight vs. the benchmark and JAM has positions in NVIDIA, MSFT, Alphabet at neutral weights for risk management, given their enormous influence in the S&P 500’s returns.
Currently, the largest active positions (overweights vs. the benchmark) are mostly from the value team and include financial companies Loews, Capital One and Morgan Stanley, which have potential to benefit from lower interest rates, and energy company Kinder Morgan.
Semiconductor manufacturer Analog Devices is a new large active position that the value team believes will benefit from a recovery in earnings from industrial companies. JUSC also owns Quanta services in the industrials sector, which should benefit from the increased need for electricity as the world electrifies.
Positioned for quality
The US economy begins 2026 in relatively good shape, with further potential for growth fuelled by additional fiscal stimulus and possibly lower interest rates, if employment continues to soften. Inflation is likely to rise in the first half of the year and will need to be monitored but overall, the backdrop should support US equities. Historically, higher quality companies have outperformed over time. We believe as earnings growth begins to broaden beyond the technology sector, higher quality stocks across many other sectors will look attractive.
