Last checked at 31 Mar 2023 07:00
LONDON STOCK EXCHANGE ANNOUNCEMENT
JPMORGAN AMERICAN INVESTMENT TRUST PLC
FINAL RESULTS FOR THE YEAR ENDED 31ST DECEMBER 2022
Legal Entity Identifier: 549300QNAI4XRPEB4G65
Information disclosed in accordance with the DTR 4.1.3
CHAIR'S STATEMENT
Financial markets in the past year have been dominated by the persistence of higher inflation than expected and the resultant hawkish stance by Central Banks, principal among which are the seven interest rate hikes in 2022 by the US Federal Reserve. This raised the Fed Funds rate range from 0% to 0.25% to 4.25% to 4.50% over the year. Unsurprisingly the result of this was rising US Treasury bond yields, which put downward pressure on US share prices, particularly the valuation of growth companies. Contributing to the negative environment has been the human tragedy of the on-going war in Ukraine, which has also directly affected energy and other supply chains and influenced markets accordingly.
The Company's net asset value declined by 8.7% on a total return basis in 2022, lagging its benchmark, the S&P 500, which fell by 8.0% in sterling terms. The share price traded during the year between a discount of 8.1% and a premium of 1.4% compared to NAV. More information is provided in the attribution report detailed in the Investment Manager's Report.
Since the Company changed its investment approach on 1st June 2019, it has outperformed the benchmark index by 6.9% in the subsequent 45 months through to the end of February 2023, providing a NAV total return to shareholders of 65.3% compared with a benchmark return of 58.4%. This is an annualised outperformance of 1.3% since the change in investment approach.
The Portfolio
At the year-end, 90.4% of your Company's assets were invested into US large cap stocks in a high conviction portfolio of some 40 stocks. This represents a curated selection of the Manager's best growth and value investment ideas. The proportion of the growth and value weighting can vary between 60% and 40% either way and was 52% in value and 48% in growth at period end. The overall allocation to the small cap portfolio was maintained at approximately 5% during the first six months of the year. As the small cap growth sell-off intensified, the allocation was increased and ended the year at 7.1%. The balance of the portfolio was invested in liquidity funds.
More details about the portfolio and activity during the year can be found in the Investment Manager's report.
Gearing
The Board has set the current tactical level of gearing at 5%, with a permitted range around this level of plus or minus 5%, meaning that currently gearing can vary between 0% and 10%. This tactical level of gearing remained unchanged throughout the year. The Company ended the year with gearing of 5.9%.
The Board believes it is prudent for its gearing capacity to be funded from a mix of sources including short and longer term tenors and fixed and floating rate borrowings. The Company has in issue a combined US$100 million of unsecured loan notes issued via private placements, US$65 million of which are repayable in February 2031 and carry a fixed interest rate of 2.55% per annum and US$35 million of which mature in October 2032 and carry a fixed interest rate of 2.32%.
The Company's £80 million revolving credit facility at ING Bank expired in August 2022 and the Company replaced this with a new £80 million revolving credit facility (with an additional £20 million accordion) with Mizuho Bank Ltd. Both were drawn in US Dollars to match the currency of the Company's asset base.
The gearing level of the Company was 7.2% calculated in line with the Association of Investment Companies ('AIC') methodology as at the latest practical date. The Board continues to review the appropriate gearing level on a regular basis.
Board Review of the Manager
After almost three years of pandemic-imposed travel restrictions, the Board was finally able to visit the Manager's offices in New York and held meetings with the portfolio managers, Jonathan Simon and Tim Parton, and also with the portfolio manager of the smaller companies' portfolio, Eytan Shapiro. The Board further met with JPMorgan's senior management team to discuss the performance of the portfolio, the Company's strategy and to review broader aspects of the Manager's service. As previously announced, Felise Agranoff has joined the portfolio management growth team in advance of the retirement of Tim Parton, which as previously announced is expected in 2024. Felise has been working closely with Tim on this portfolio's growth stocks for a number of years and is also the named portfolio manager alongside Tim on other of the Manager's flagship funds.
The Manager provides other services to the Company, including accounting, company secretarial and marketing services. These have been formally assessed through the annual manager evaluation process. Thus, taking all factors into account, the Board concluded that the ongoing appointment of the Manager is in the continuing interests of shareholders.
Ongoing Charges
The Board continues to monitor closely the Company's cost base. The Company's Ongoing Charges Ratio ('OCR') for the year under review was 0.36%. This means the Company remains one of the most competitively priced US actively managed funds available to UK investors, in either closed-ended or open-ended form.
Share Price and Premium/Discount
Throughout the year, the Company's shares traded at a discount to the NAV other than for a brief period of trading at a premium. Consistent with our statements made in previous years and because share buy-backs at a discount to NAV are enhancing to the NAV for remaining shareholders, the Board is prepared to buy-back shares when they stand at anything more than a small discount. This undertaking has operated for several years and applies in normal market conditions.
During the year 4,904,366 shares were purchased into Treasury, at a cost of £35 million, representing 2.5% of the Company's issued share capital at the beginning of 2022, and at an average discount to NAV of 3.8%. Since the year end and at the time of writing the Company has repurchased a further 4,552,232 shares into Treasury, at a cost of £32 million.
The Company will again ask shareholders to approve the repurchase of up to 14.99% of its capital at a discount to estimated NAV of the Company's shares at the forthcoming Annual General Meeting. We will also be seeking shareholder permission to issue shares, where the Board is confident of sustainable market demand. The authority, if approved, will allow the Company to issue up to 10% of its issued share capital from Treasury. The Company will only issue shares at a price in excess of the estimated NAV, including income and with the value of the debt at fair value.
Dividends
Whilst capital growth is the primary aim of the Company, the Board understands that dividend receipts can be an important element of shareholder returns. As such the Board has sought to enhance shareholder returns with progressive dividend increases.
The Company paid an unchanged interim dividend in respect of the 2022 financial year of 2.5p on 7th October 2022. Subject to shareholder approval at the AGM, a final dividend of 4.75p will be paid on 31st May 2023 to shareholders on the register on 21st April 2023, making a total of 7.25p per share. The Board are happy to report that despite the difficult economic backdrop, this is an increase of 3.6 % on last year's total of 7.0p per share.
After the payment of the proposed final dividend, the balance in the revenue reserves will still be £21.7 million, equivalent to 11.5 p per share (2021: 10.9p per share) or 1.6 times (2021: 1.6 times) the current dividend. The prudent approach of building up revenue reserves in prior years provides the Board with a means of supporting current dividend levels and in the future, should earnings per share drop materially in any financial year.
The Board continues to monitor the net income position of the Company and, based on current estimated dividend receipts for the year ahead, the Board aims at least to maintain the aggregate 2022 dividend in the forthcoming year.
Environmental, Social and Governance ('ESG')
The Manager continues to enhance its ESG approach which ensures it best captures the fundamental insights of the investment team. Key developments have been the access to more ESG data, better analytical capabilities and continuous updates to the in-house research processes. The Board continues to engage with the Manager on ESG considerations and how the investment team uses the available data in the construction of the Company's portfolio. More information can be found in the Manager's Approach to ESG in the full Annual Report.
The Board
There was no change to the composition of the Board during the year 2022.
As previously announced, Ms. Pui Kei Yuen joined the Board as a Non-Executive Director of the Company with effect from 1st January 2023. Ms. Yuen has over 25 years' experience in equities. Her previous roles included UK institutional equity portfolio management and research at Mercury Asset Management, Pan European equity responsibilities at UBS and Bank of America Merrill Lynch advising large institutional investors and hedge funds. More recently, she worked with the Boards of earlier stage private companies. Ms. Yuen is also a Non-Executive Director of European Assets Trust plc.
As previously signalled, Sir Alan Collins will be retiring from the Board at the conclusion of the forthcoming AGM. On behalf of the Board and all shareholders I would like to record our sincere thanks to Alan for his significantly positive contribution to the Company, in particular for his role as the Senior Independent Director and Chair of both the Risk and Remuneration Committees. Ms Nadia Manzoor will become Senior Independent Director and Chair of the Remuneration Committee on Alan's retirement and Mr Robert Talbot will assume the Chair of the Risk Committee. If reappointed by shareholders at the forthcoming AGM, I shall serve until the AGM in 2024 at the conclusion of which I shall be retiring. Further information about Chair succession will be provided in due course.
The results of this year's externally facilitated Board evaluation process confirmed that all Directors possess the experience and attributes to support a recommendation to shareholders that they seek re-appointment at the Company's forthcoming Annual General Meeting. In line with the AIC Code of Corporate Governance, additional statements to support the re-appointment of each Director are included in the Annual Report.
Shareholder engagement
The Board believes that shareholder interactions are very helpful in assisting it to manage the Company's affairs, and, as opportunities arise, Board members welcome and seek such meetings.
The portfolio managers also held regular calls with shareholders, including webinars, and provided portfolio and market updates on the Company's website during the year. These interactions have been well received by shareholders.
The Company delivers email updates on its progress with regular news and views, as well as the latest performance. If you have not already signed up to receive these communications and you wish to do so you can opt in via www.jpamerican.co.uk.
Annual General Meeting
This year's Annual General Meeting is the Company's 108th and it will be held on Thursday, 18th May 2023 at 2.30 p.m. at 60 Victoria Embankment, London EC4Y 0JP. Apart from the formal business of the meeting, shareholders will have the opportunity to hear from our portfolio managers, Jonathan Simon, Timothy Parton and Felise Agranoff, who will be presenting virtually, followed by a question and answer session. Shareholders are invited to attend the meeting and raise any questions they have, either by asking questions at the meeting, or in advance by writing to the Company Secretary at the address on page 103, of the Annual Report or via email to invtrusts.cosec@jpmorgan.com. As is normal practice for the Company, all voting on the resolutions will be conducted on a poll. The Board strongly encourages all shareholders to exercise their votes by completing and returning their proxy forms in accordance with the notes to the Notice of Meeting in the Annual Report.
For shareholders who wish to follow the AGM proceedings, but choose not to attend in person, we will be able to offer participation via video conference. Details on how to register, together with access details, can be found on the Company's website: www.jpmamerican.co.uk. Due to technological reasons, shareholders viewing the meeting via conferencing software will not be able to vote in the poll and we therefore especially encourage those shareholders who cannot attend in person, to exercise their votes in advance of the meeting by completing and submitting their form of proxy. Shareholders are also encouraged to send any questions to the Board, via the Company Secretary, at the email address above, ahead of the AGM. We will endeavour to answer all relevant questions at the meeting, or via the website, depending on arrangements in place at the time.
If there are any changes to the arrangements for the Annual General Meeting, the Company will update shareholders through the Company's website and, if appropriate, through an announcement to the London Stock Exchange.
Outlook
The material increases in interest rates effected by the US Federal Reserve in 2022 suggest that we are now nearing the end of this rate rising cycle. There is also mounting evidence that US inflation has peaked and is now on a downward trend. Together these suggest that the worst effect on the US stock market of these twin concerns has likely passed. This does not eliminate the risk of further volatility in the market as concerns about the lagged effects on company earnings come into investors' focus. The end of the era of low cost money that has obtained until recently, dating from the Global Financial Crisis of 2007-2008 was bound to have many consequences. The recent collapse of Silicon Valley Bank and stresses in other regional US banks is one such, and the US Federal Reserve will now need to have a heightened focus on financial stability as it pursues its inflation fight.
The pullback in the stock market in 2022 means that valuations are better placed for the improvement in economic conditions that will follow over the medium term. In parallel, the US market remains the global leader across many sectors and as the largest market in the world continues to provide a rich array of investment opportunities.
Shareholders who take a medium to long term view should have confidence that current market pricing is more attractive than it has been for some time and that the Company's portfolio management team will continue to seek out high quality growth and value stocks which are priced attractively, with a high conviction approach to portfolio construction designed to deliver good long term returns.
Dr Kevin Carter
Chair 31st March 2023
INVESTMENT MANAGER'S REPORT
Market Review
2022 was a difficult period for markets and the S&P 500 finished the year down 18% in US$ terms. It was the first negative year for the S&P 500 since 2018 and the worst calendar year performance since 2008. Heightened geopolitical tensions, persistently high inflation, hawkish monetary policy and recessionary fears all weighed on investor sentiment.
The year began with Russia's invasion of Ukraine, which disrupted supply chains and pushed up oil and gas prices, compounding inflation pressures. US inflation reached its highest level in over 40 years. Core inflation rose 9.1% year-over-year in June, forcing the US Federal Reserve (Fed) to adopt a much more aggressive stance than the market had previously expected. The Fed raised rates by a total of 4.25 percentage points in 2022 in an effort to tame inflation pressures.
This steep interest rate trajectory triggered a slowdown in many areas of discretionary consumer spending, not least in housing activity. Parts of the manufacturing and transport sectors also contracted, although other areas have so far remained quite resilient, notably leisure travel, which is experiencing strong pent-up demand following travel bans during the pandemic. Corporate earnings forecasts for 2023 declined towards year end as fears of weaker demand and a potential recession mounted. The labour market remains quite tight, with job vacancies far exceeding the number of job seekers. However, labour is a lagging indicator, so it is not surprising that we are starting to see some signs of weakness, including a rise in redundancies.
Very few sectors prospered during 2022. The standout exception was the energy sector, which was the top performing sector in the S&P 500 for a second year in a row, returning 66% over the past year, thanks to the continued rise in oil and gas prices. Defensive stocks also did relatively well, with utilities enjoying a positive return of 1%, while consumer staples declined 1% and healthcare stocks fell 2% - modest falls compared to the decline in the overall market. Longer duration growth sectors were the primary laggards, with communication services (-40%), consumer discretionary (-37%), and information technology (-28%) the worst affected.
2022 S&P 500 Index performance (US$)
Large cap stocks continued to outperform small caps modestly - the S&P's 18% decline was not quite as bad as the 20% drop in its small cap counterpart, the Russell 2000. Large cap stocks have outperformed small caps for eight of the last 12 years, and given this extended run of small cap underperformance, small cap valuations now look quite compelling relative to large caps.
However another long-term market trend was disrupted during the year. Value stocks outperformed growth for the first time since 2016, as the Russell 1000 Value Index fell 8%, while the Russell 1000 Growth Index dropped by 29%. This reversal in the fortunes of growth stocks was driven by a rotation out of technology names, while the resurgence in value was underpinned by the strong rally in energy names. However, even though value stocks outpaced growth decisively in 2022, value remains attractive on a valuation basis compared to long term averages, although the gap has narrowed.
The following table provides an overview of the returns of the main style and size indices in the US for 2022.
2022 US Equities Style performance (US$)
Value | Blend | Growth | |
Large cap | -7.5% | -18.1% | -29.1% |
Mid cap | -12.0% | -17.3% | -26.7% |
Small cap | -14.5% | -20.4% | -26.4% |
Source: Source: FactSet, Russell Investment Group, Standard & Poor's, Wilshire, J.P. Morgan Asset Management. Data as of 31st December 2022. All calculations are cumulative total return, including dividends reinvested for the stated period. For all time periods, total return is based on Russell style indices with the exception of the large blend category, which is based on the S&P 500 Index. Past performance is not a reliable indicator for current and future performance.
Performance and Overall Asset Allocation
Against this background, the Company's net asset value declined by 8.7% on a total return basis in 2022 in sterling terms, slightly lagging its benchmark, the S&P 500, which fell by 8.0% on the same basis.
Although the large cap portion of the portfolio posted a negative return, it outperformed its benchmark for the period, as shown in the table above. The Company's small cap allocation, which averaged 6% of the portfolio over the period, detracted from relative returns, and this, along with the use of gearing, was the reason for the portfolio's underperformance relative to the S&P 500.
Performance attribution
For the year ended 31st December 2022
% | % | |
Net asset value (fair value) total return (in sterling terms)APM | -8.7 | |
Benchmark total return (in sterling terms) | -8.0 | |
Excess return | -0.7 | |
Contributions to total returns: |
| |
Large cap portfolio | 0.2 | |
Allocation effect | 0.2 |
|
Selection effect | 0.0 |
|
Small cap portfolio | -0.5 | |
Allocation and selection effect | -0.5 |
|
Gearing1 | -0.8 | |
Share buyback | 0.1 | |
Management fee/expenses | -0.4 | |
Technical differences2 | -0.4 | |
Impact of fair value valuation3 | 1.1 | |
Total | -0.7 |
Source: J.P. Morgan/Morningstar.
All figures are on a total return basis.
Performance attribution analyses how the Company achieved its recorded performance relative to its benchmark.
1 Cost of gearing plus the impact of holding cash and liquidity stocks compared to the benchmark. Includes impact of FX movement on debt.
2 Arises primarily where there is a divergence in the total return calculations. This is due to different methodologies being used to calculate the total return set out in the attribution calculations. The Company's NAV total return is calculated by Morningstar and includes reinvestment of dividends paid by the Company. The JPMorgan Asset Management in-house attribution system calculates the return at a portfolio level and includes dividends receivable by the Company from the underlying stocks held in the portfolio during the period, on an ex-dividend basis.
3 The impact of fair valuation includes the effect of valuing the combined US$100m private placements at fair value. It is the sum of the impact on the closing NAV of the fair value adjustment and its impact on the calculation of total returns arising from the reinvestment of dividends paid in the year into the Company's NAV.
APM Alternative Performance Measure ('APM').
A glossary of terms and APMs is provided on pages 99 to 101 of the Annual Report.
Large Cap Portfolio
Strong stock specific contributors included ConocoPhillips, an oil and gas producer, and auto parts retailer AutoZone. ConocoPhillips' share price rallied more than 70% during the review period, thanks to elevated oil and gas prices. The company reported solid earnings that exceeded expectations. AutoZone benefited from the fact that the stock of cars is ageing, increasing demand for repairs. The non-discretionary nature of such repairs, and AutoZone's associated healthy pricing power, supported performance. Furthermore, after several years of investment, the company is finally gaining traction in the commercial vehicle area of the market.
The Company's large cap portfolio also benefited from stock selection in the communication services and healthcare sectors. As mentioned previously, communication services was the worst performing sector of the S&P 500 over the year, but our holdings in this sector outperformed their benchmark peers. In particular, a lack of exposure to Meta Platforms (formerly Facebook) and an overweight position in telecoms services company T-Mobile US, proved beneficial. Meta Platforms' shares came under significant pressure, to the point where the stock looks interesting from a valuation perspective. Indeed, it could be considered a value name, as it is now included in the Russell 1000 Value Index. However, we have not been tempted to add this name to the portfolio, as we see continued risk due to regulatory and data privacy concerns. The company also needs to invest more heavily in areas such as artificial intelligence (AI) to maintain its competitive positioning. T-Mobile US, along with other wireless carriers, performed relatively well, as investors sought the safety of more defensive names. The pandemic boosted T-Mobile US's subscriptions and that momentum continued in 2022, with 6.4 million new subscriptions over the calendar year. The company posted strong quarterly results and raised its earnings guidance.
Within healthcare, our exposure to pharma companies AbbVie, Bristol Myers Squibb (BMS) and Regeneron Pharmaceuticals, were among the top contributors to performance. AbbVie benefitted from the growth-to-value rotation, experiencing a nice resurgence as fundamentals improved and investors seemed confident that the impact of new competitors on Humira, Abbvie's successful arthritis treatment, will be more modest than originally expected. In addition, the company has an impressive drug pipeline. Bristol Myers Squibb is also delivering on important growth drivers and drug approvals, and the market reacted favourably to its planned acquisition of Turning Point Therapeutics, which will expand BMS's presence in the precision/targeted medicine field and generate synergies with its existing oncology franchise. We continue to like both AbbVie and BMS given their undemanding valuations, healthy dividends and strong free cash flows. Regeneron Pharmaceuticals traded higher after the company announced better than expected trial results for Eylea, a drug used to fight eye disease.
The largest detractors to relative performance at the stock level were broadband communications provider Charter Communications, and Advanced Micro Devices, a semiconductor producer. Shares of Charter Communications dropped due to investor concerns about slowing growth in broadband subscriptions. However, we remain comfortable with our position, as we expect Charter Communications to benefit over time from its efforts to expand the reach of its broadband business. Advanced Micro Devices has been under pressure over the last six months due to rising inventories across the semiconductor industry, but we believe the company can continue to take meaningful market share from its central processing unit (CPU) competitor, Intel. In our view, Advanced Micro Devices is also benefiting from the fact that customers enjoy having a viable alternative to Intel for the first time in decades. We have retained our holding.
Performance was also hindered by our underweight position in consumer staples and our stock selection in industrials. While the consumer staples sector generated a negative return over the period, it significantly outperformed the S&P 500. We recognise that this sector offers some defensive characteristics. However we continue to struggle to find attractively valued names that offer long-term growth opportunities, especially now, after such a risk adverse period. Our exposure within the sector is focused on Procter & Gamble (P&G), a producer of household and personal products, which detracted modestly over the period as its share price came under pressure. However, we believe there are good reasons to maintain this position. The company has navigated supply concerns better than its smaller competitors, enhancing its competitive position. In fact, it has been gaining market share in many of its product categories over the last few years. These trends accelerated during the pandemic, as many consumers experienced an improvement in their purchasing power and indulged themselves by buying more expensive brands. While the current cost of living crisis may see some consumers trade down to lower priced brands, we believe the quality of P&G's brands will ensure it continues to increase market share over the long term.
Within industrials, the portfolio's holdings lagged their benchmark peer group. In particular, our exposure to FedEx detracted. The company announced a large earnings and revenue miss in the second quarter, and lowered its full year guidance as a result of economic weakness in Asia and service challenges in Europe. After reviewing the company's fundamentals, we decided to exit the name. In addition, our lack of exposure to defence names within the sector also hindered relative performance.
Large Cap Portfolio Stock Attribution
For the year ended 31st December 2022
| Relative weight | Stock return | Impact | |
Top Contributors | (%) | (%) | (%) | |
ConocoPhillips | 1.9 | 71.5 | 1.4 | |
AutoZone | 2.5 | 17.6 | 1.0 | |
Meta Platforms* | -0.8 | -64.2 | 0.9 | |
AbbVie | 1.9 | 24.0 | 0.8 | |
Bristol-Myers Squibb | 1.7 | 19.0 | 0.7 | |
| Relative weight | Stock return | Impact | |
Top Detractors | (%) | (%) | (%) | |
Charter Communications | 2.0 | -48.0 | -0.7 | |
Advanced Micro Devices | 1.0 | -55.0 | -0.7 | |
Exxon Mobil* | -1.4 | 87.4 | -0.7 | |
Zebra Technologies* | -0.0 | -55.8 | -0.6 | |
Capital One Financial | 3.0 | -34.6 | -0.6 | |
Source: Wilshire, Factset. Excludes Cash & Gearing (US$).
*Indicates stock was not held as of 31st December 2022.
The portfolio is actively managed. Holdings, sector weights, allocations and leverage, as applicable, are subject to change at the discretion of the investment manager without notice. Past performance is not a reliable indicator of current and future results.
Portfolio Activity
The recent market pullback has created some opportunities to acquire attractive, high growth companies at more reasonable prices. However, we are being very selective, only adding names with differentiated and compelling fundamentals. During the review period we purchased nine new names and exited the same number, substantially fewer than in 2021, when we swapped out 16 positions.
One new acquisition was SolarEdge Technologies, which provides solar power equipment to residential and commercial customers. Its products include smart modules to optimise and monitor power usage, solar inverters, electric vehicle (EV) chargers and energy battery banks to support EV charging. We believe renewable energy has very favourable long-term prospects, as the global transition to net zero carbon emissions gathers momentum. The Biden administration's Inflation Reduction Act (IRA) is also hugely beneficial to the sector, as is Europe's electricity price shock. SolarEdge is a sector leader, with a healthy balance sheet, positive free cash flow and a comprehensive range of products. We are very pleased that we were able to acquire the stock at an attractive valuation.
This and other acquisitions were funded by the outright sale of several positions, including our holding in PayPal, a digital payments company. While we still like this sector, we have concerns about PayPal's ability to remain competitive given the emergence of newer entrants and large players like Apple Pay. Later in the year, we also exited Global Payments, a payments technology company, on similar concerns. We used the proceeds to build a position in Hubbell, a leading electrical components manufacturer. In our view, electrical infrastructure spending is at the start of a multi-year investment cycle, as growth in EV penetration, renewables, distributed energy, and increasing storm activity will bolster demand at the same time that ageing grid infrastructure will require significant maintenance and modernisation. Hubbell has improved its portfolio mix substantially and as a result, it is now a higher quality, less cyclical business, with improved margin and growth profiles, and potential for a further positive rerating.
On the value side of the portfolio, we exited apparel retailer GAP early in the year. GAP's management team has made considerable efforts to reduce the footprint of its stores, in favour of its higher growth Old Navy and Athleta brands, but the company has struggled to execute these plans effectively. GAP also faces structural challenges including e-commerce disintermediation, associated downward pressures on clothing prices and a shift in consumer preferences away from expenditure on clothing. While the stock remains very attractive from a valuation perspective, in our view its structural and cyclical risks are too high to justify continued exposure. As previously mentioned, we exited FedEx on concerns around its fundamentals, and we redeployed the proceeds of this sale into the better risk/reward opportunity offered by M&T Bank, a US regional bank. This company came under pressure due to its interest rate sensitivity, as investors worried about potential Fed rate cuts in 2023. We used the sell-off as an opportunity to build a position in a name we believe has a best-in-class management team, an impressive balance sheet and a history of consistent performance during difficult environments.
These acquisitions and disposals have not had a significant impact on the portfolio's structure. Financials and information technology remain the largest sectoral allocations, which together represent approximately 39% of the overall large cap allocation. Financials make up the largest overweight relative to the benchmark and we have been adding selectively to our exposure to higher quality names in this sector, such as Bank of America, as well as the newer holding in M&T Bank, discussed above. Conversely, we remain underweight technology, but we have begun to moderate that underweight slightly as valuations have corrected quite meaningfully. The portfolio also remains underweight consumer staples, as we continue to find names with better risk/reward profiles in other sectors.
The large cap portfolio is divided between value and growth stocks, with the allocation allowed to vary between 60:40 and 40:60. At the end of the review period, value stocks comprised some 52% of the large cap portfolio, with growth stocks comprising the balance, leaving portfolio positioning almost unchanged over the year. An overview of the split between value and growth in the strategy since the change in investment approach in June 2019 is shown in a graph below. However, when considering the whole portfolio relative to the S&P 500, we actually have a positive bias towards value and growth, as measured by Barra, with the tilt to growth being slightly larger.
The table below shows that the large cap portfolio is trading at a 9% discount to the market on a free cash flow basis, which confirms that we are not paying a premium for good cash flow. The portfolio is expected to deliver earnings growth of around 5% for the next 12 months, which is lower than the market, however, both of these figures are based on consensus earnings, which may need to be revised lower. While earnings may not deliver positive growth, it is comforting to have the valuation cushion provided by our holdings, relative to the market.
Characteristics | Large-Cap Portfolio | S&P 500 |
Weighted Average Market Cap | US$412.6bn | US$417.4bn |
Price/Earnings, 12-month forward1 | 16.3x | 16.6x |
Price/Free Cash Flow, last 12-months | 15.2x | 16.6x |
EPS Growth, 12-month forward1 | 4.5% | 6.0% |
Return on Equity, last 12-months | 23.2% | 26.1% |
Predicted Beta | 1.05 | - |
Predicted Tracking Error | 3.02 | - |
Active Share | 70% | - |
Number of holdings | 40 | 500 |
Source: FactSet, Barra, J.P. Morgan Asset Management. Data as of 31st December 2022.
1 Including negatives.
Small Cap Portfolio
The small cap portfolio is allocated solely to growth stocks. Its underperformance of the S&P 500 negatively impacted returns over this period. Small cap growth stocks were caught up in the sharp sell-off of much larger growth names discussed above. The overall allocation to the small cap portfolio was maintained at approximately 5% during the first six months of the year. As the sell-off intensified, we increased the allocation, which ended the year at 7.2%. As we mentioned previously, small cap valuations look very compelling relative to large caps. Additionally, the prolonged period of large outperforming small suggests the stage may be set for a reversal of this trend, although the timing and duration of any such re-rating is yet to be determined.
Outlook
We expect inflation pressures to continue to ease during 2023. The labour market is showing signs of softening, global supply chain pressures are dissipating and, along with declining commodity prices, these developments should allow prices to stabilise, although inflation is unlikely to return to its previous lows any time soon. Nonetheless, slower inflation is important for financial markets as it means that interest rates should peak during the year. We expect the Fed to put rates on hold during the second half of 2023, while it assesses the inflation outlook. This viewpoint seems even more likely as the recent events in the banking space have shown that central banks now appear to be prioritising financial stability over inflation.
Any policy pause may come too late to stop the US economy tipping into recession, although recession is not inevitable and if it does happen, it should be fairly mild and short-lived. This assessment is based on our view that there is limited excess in the economy. Activity across many sectors over the last decade was relatively sluggish and debt in the system is quite low (except at the federal government level). And as mentioned above, discretionary spending is slowing, as is housing activity. Lending standards have been tightening and are likely to continue to do so at a more aggressive pace.
The S&P 500 forward P/E ratio is now at 17x, well below the 21x level at which it started the year. However, consensus estimates of around 1% earnings growth for the S&P 500 for 2023 still seem too optimistic. In our view, the weakening economic backdrop will result in a modest, 4%, contraction in earnings. While this would not be a welcome development, it is important to note that after last year's market decline, US equities are already discounting weaker growth and a significant amount of future damage to cash flows and corporate earnings.
On the positive side, the past year's market fall, and any further drawdown, should set investors up for better returns in the long run, particularly if the current uncertain climate is eventually replaced by one reminiscent of the last decade, which was characterised by slow growth, low inflation, low interest rates and high profitability. This is the case because current low valuations represent a great opportunity for active managers to take advantage of the lower prices of high-quality companies to position portfolios for the subsequent stock market recovery, as we have already been doing over recent months.
We are long-term investors and look to invest in stocks with a time horizon of three to five years. The last three extraordinary years have been very challenging to navigate, but our disciplined investment approach has served the Company's shareholders well, delivering significant outright gains and outperformance over this period. The cumulative return in the three years to end December 2022 was +42.7%, comfortably outpacing the benchmark return of 36.4%. We intend to maintain our focus on high conviction stocks and continue to take advantage of market dislocations to invest in the most compelling stock selection opportunities, for the further benefit of the Company's shareholders.
Timothy Parton
Jonathan Simon
Felise Agranoff
Portfolio Managers 31st March 2023
PRINCIPAL AND EMERGING RISKS
The Directors confirm that they have carried out a robust assessment of the principal and emerging risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. The risks identified and the ways in which they are managed or mitigated are summarised below.
With the assistance of JPMF, the Risk Committee, chaired by Sir Alan Collins, has drawn up a risk matrix, which identifies the principal and emerging risks to the Company. These are reviewed and discussed on a regular basis by the Board. These risks fall broadly into the following categories:
Principal risk | Description | Mitigating activities |
Investment and Strategy | An inappropriate investment strategy, poor asset allocation or the level of gearing, may lead to underperformance against the Company's benchmark index and its peer companies, resulting in the Company's shares trading on a wider discount. | The Board mitigates this risk by insisting on diversification of investments through its investment restrictions and guidelines which are monitored and reported on regularly by the Managers. JPMF provides the Directors with timely and accurate management information, including performance data and attribution analyses, revenue estimates, liquidity reports and shareholder analyses. The Board monitors the implementation and results of the investment process with the portfolio managers, who attend the majority of Board meetings, and reviews data which details the portfolio's risk profile. The Manager deploys the Company's gearing within a range set by the Board. |
Market | Market risk arises from uncertainty about the future prices of the Company's investments. This market risk comprises three elements - equity market risk, currency risk and interest rate risk. | The Board considers the split in the portfolio between small and large companies, sector and stock selection and levels of gearing on a regular basis and has set investment restrictions and guidelines, which are monitored and reported on by JPMF. The Board monitors the implementation and results of the investment process with the Manager. However, the fortunes of the portfolio are significantly determined by market movements in US equities, the rate of exchange between the US dollar and sterling and interest rate changes. This is a risk that investors take having invested into a single country fund. |
Operational and Cybercrime | Disruption to, or failure of, the Manager's accounting, dealing or payments systems or the custodian's or depositary's records could prevent accurate reporting and monitoring of the Company's financial position. On 1st July 2014, the Company appointed Bank of New York Mellon (International) Limited to act as its depositary, responsible for overseeing the operations of the custodian, JPMorgan Chase Bank, N.A., and the Company's cash flows. Details of how the Board monitors the services provided by the Manager and its associates and the key elements designed to provide effective internal control are included in the Internal Control section of the Corporate Governance Statement on page 57 of the Annual Report. | The threat of cyber-attack, in all its guises, is regarded as at least as important as more traditional physical threats to business continuity and security. The Board has received the cyber security policies for its key third party service providers and JPMF has assured the Directors that the Company benefits directly or indirectly from all elements of JPMorgan's Cyber Security programme. The information technology controls around the physical security of JPMorgan's data centres, security of its networks and security of its trading applications are tested by independent reporting accountants and reported every six months against the AAF Standard. |
Loss of Investment Team or Investment Managers | The sudden departure of the investment managers or several members of the wider investment management team could result in a short term deterioration in investment performance. | The Manager takes steps to reduce the likelihood of such an event by ensuring appropriate succession planning and the adoption of a team based approach. |
Share Price Relative to Net Asset Value ('NAV') per Share | If the share price of an investment trust is lower than the NAV per share, the shares are said to be trading at a discount. | The Board monitors the Company's premium/discount level and, although the rating largely depends upon the relative attractiveness of the trust, the Board is committed to buy-back shares when they stand at anything more than a small discount to enhance the NAV per share for remaining shareholders. |
Accounting, Legal and Regulatory | In order to qualify as an investment trust, the Company must comply with Section 1158 of the Corporation Tax Act 2010 ('Section 1158'). Details of the Company's approval are given on page 54 of the Annual Report. Section 1158 requires, among other matters, that the Company does not retain more than 15% of its investment income, can demonstrate an appropriate diversification of risk and is not a close company. | Were the Company to breach Section 1158, it might lose investment trust status and, as a consequence, gains within the Company's portfolio would be subject to Capital Gains Tax. The Section 1158 qualification criteria are continually monitored by JPMF and the results reported to the Board each month. The Company must also comply with the provisions of the Companies Act 2006 and, as its shares are listed on the London Stock Exchange, the UKLA Listing Rules and Disclosure & Transparency Rules ('DTRs'). A breach of the Companies Act 2006 could result in the Company and/or the Directors being fined or the subject of criminal proceedings. Breach of the UKLA Listing Rules or DTRs could result in the Company's shares being suspended from listing, which in turn would breach Section 1158. The Directors seek to comply with all relevant regulation and legislation in the UK, Europe and the US and rely on the services of its Company Secretary, JPMF, and its professional advisers to monitor compliance with all relevant requirements. |
Political and Economic | Changes in legislation, including in the US, UK and the European Union, may adversely affect the Company either directly or because of restrictions or enforced changes on the operations of the Manager. JPMF makes recommendations to the Board on accounting, dividend and tax policies and the Board seeks external advice where appropriate. In addition, the Company is subject to political risks, such as the imposition of restrictions on the free movement of capital. | The Company is therefore at risk from changes to the regulatory, legislative and taxation framework within which it operates, whether such changes were designed to affect it or not. The Board continues to monitor and review the impact of Britain's exit from the EU, including the impact of the trade deal reached in December 2020. |
Global Pandemics | Covid-19 was identified initially as an emerging risk, but quickly moved to become a current significant risk. The global reach and disruption caused by the virus to markets worldwide was unprecedented. Even though there are no direct comparatives from history to learn from, time after time, extreme market falls are followed by recovery, albeit over varying and sometimes extended time periods. To date the portfolio's holdings have not exhibited a material long-term impact and have recovered as the containment measures eased, although the pandemic has yet to run its course. | The Board monitors effectiveness and efficiency of service providers' processes through ongoing compliance and operational reporting and there were no disruptions to the services provided to the Company in the year under review due to the pandemic. The Company's service providers implemented business continuity plans which include working almost entirely remotely. The Board continues to receive regular reporting on operations from the Company's major service providers and does not anticipate a fall in the level of service. |
Climate Change | Climate change, which barely registered with investors a decade ago, has today become one of the most critical issues confronting asset managers and their investors. Investors can no longer ignore the impact that the world's changing climate will have on their portfolios, with the impact of climate change on returns now inevitable. | The Manager's investment process integrates considerations of environmental, social and governance factors into decisions on which stocks to buy, hold or sell. This includes the approach investee companies take to recognising and mitigating climate change risks. |
Emerging risk | Description | Mitigating activities |
US and China Technology Competition | Since the end of the Second World War, the world has enjoyed a technology and economic hegemony with the US at its core. With the development of China as a political, cultural, technological and economic rival, there is the risk that alongside the trade tensions we have seen in recent years, there may develop a rival technology and economic infrastructure which is not compatible with or available to the US companies in which we invest. | This may limit the ability of US companies to innovate and address large elements of the global market with the result that a Company with an investment objective focused on the United States may find future returns to be muted or find itself eclipsed by the investment opportunities and returns available elsewhere. The Company addresses these global developments in regular questioning of the Manager and with external expertise and will continue to monitor these issues, should they develop. |
ESG requirements from investors | The Company's policy on ESG and climate change may be out of line with ESG practices which investors are looking to invest in accordance with. | There is continual enhancement to the Manager's ESG approach each year. As the ESG processes evolve, additional questions are added by the analysts to their investment process which intends to highlight companies with both ESG strengths or risks. The Board liaises closely with the Managers on this continually to understand the ESG integration process. More details on this can be found in the Manager's Approach to ESG on pages 25 to 29 of the Annual report. |
Geopolitical | There is an increasing risk to market stability and investment opportunities from geo-political conflicts, such as between Russia and the Ukraine, South and North Korea, and China and Taiwan. In addition there is a potential risk from the increasing polarisation of politics in the United States. | There is little direct control of risk possible. The Company addresses these global developments in regular questioning of the Manager and with external expertise and will continue to monitor these issues, should they develop. The Board can with shareholder approval look to amend the investment policy and objectives of the Company to avoid exposure to or mitigate the risks arising from geopolitical concerns. |
Artificial Intelligence (AI) | While it might equally be deemed a great opportunity and force for good, there appears also to be an increasing risk to business and society more widely from AI. Advances in computing power means that AI has become a powerful tool that will impact a huge range of areas and with a wide range of applications that include the potential to disrupt and even to harm. In addition the use of AI could be a significant disrupter to business processes and whole companies leading to added uncertainty in corporate valuations. | The Board will work with the Manager to monitor developments concerning AI as its use evolves and consider how it might threaten the Company's activities, which may, for example, include a heightened threat to cybersecurity. The Board will work closely with the Manager in identifying these threats and, in addition, monitor the strategies of our service providers. Furthermore, the Company's investment process includes consideration of technological advancement and the resultant potential to disrupt both individual companies and the wider markets. |
TRANSACTIONS WITH THE MANAGER AND RELATED PARTIES
Details of the management contract are set out in the Directors' Report on page 48 of the Annual Report. The management fee payable to the Manager for the year was £4,329,000 (2021: £4,075,000) of which £nil (2021: £nil) was outstanding at the year end.
Included in administration expenses in note 6 on page 76 of the Annual Report are safe custody fees amounting to £12,000 (2021: £13,000) payable to JPMorgan Chase Bank N.A. of which £2,000 (2021: £2,000) was outstanding at the year end.
Handling charges on dealing transactions amounting to £11,000 (2021: £11,000) were payable to JPMorgan Chase Bank N.A during the year of which £3,000 (2021: £3,000) was outstanding at the year end.
The Manager may carry out some of its dealing transactions through group subsidiaries. These transactions are carried out at arm's length. The commission payable to JPMorgan Securities Limited for the year was £nil (2021: £nil) of which £nil (2021: £nil) was outstanding at the year end.
The Company also holds cash in the JPMorgan US Dollar Liquidity Fund, which is managed by JPMF. At the year end this was valued at £33.8 million (2021: £28.3 million). Income amounting to £611,000 (2021: £55,000) was receivable during the year of which £131,000 (2021: £nil) was outstanding at the year end.
At the year end, total cash of £1,079,000 (2021: £36,000) was held with JPMorgan Chase Bank N.A. A net amount of interest of £1,000 (2021: £nil) was receivable by the Company during the year from JPMorgan Chase of which £nil (2021: £nil) was outstanding at the year end.
Full details of Directors' remuneration can be found on page 51 and in note 6 on page 76 of the Annual Report.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report & Financial Statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare the Annual Report & Financial Statements for each financial year. Under that law, the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the Directors must not approve the Financial Statements unless they are satisfied that, taken as a whole, the Annual Report & Financial Statements are fair, balanced and understandable, provide the information necessary for shareholders to assess the Company's position, performance, business model and strategy and that they give a true and fair view of the state of affairs of the Company and of the total return or loss of the Company for that period. In order to provide these confirmations, and in preparing these financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and accounting estimates that are reasonable and prudent;
• state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and
• prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Company will continue in business
and the Directors confirm that they have done so.
The Directors are responsible for keeping proper accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The accounts are published on the www.jpmamerican.co.uk website, which is maintained by the Company's Manager. The maintenance and integrity of the website maintained by the Manager is, so far as it relates to the Company, the responsibility of the Manager. The work carried out by the Auditor does not involve consideration of the maintenance and integrity of this website and, accordingly, the Auditor accepts no responsibility for any changes that have occurred to the accounts since they were initially presented on the website. The accounts are prepared in accordance with UK legislation, which may differ from legislation in other jurisdictions.
Under applicable law and regulations the Directors are also responsible for preparing a Directors' Report, Strategic Report, Statement of Corporate Governance and Directors' Remuneration Report that comply with that law and those regulations.
Each of the Directors, whose names and functions are listed on page 47 of the Annual Report, confirms that, to the best of their knowledge:
• the financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law), give a true and fair view of the assets, liabilities, financial position and return or loss of the Company; and
• the Strategic Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.
The Board confirms that it is satisfied that the Annual Report & Financial Statements taken as a whole are fair, balanced and understandable and provide the information necessary for shareholders to assess the strategy and business model of the Company.
The Board also confirms that it is satisfied that the Strategic Report and Directors' Report include a fair review of the development and performance of the business, and the position of the Company, together with a description of the principal risks and uncertainties that the Company faces.
For and on behalf of the Board
Dr Kevin Carter
Chair
31st March 2023
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31ST DECEMBER 2022
| 2022 | 2021 |
| ||||
Revenue | Capital | Total | Revenue | Capital | Total | ||
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||
(Losses)/gains on investments held at fair value | |||||||
through profit or loss | - | (144,183) | (144,183) | - | 322,790 | 322,790 | |
Net foreign currency losses | - | (8,319) | (8,319) | - | (1,047) | (1,047) | |
Income from investments | 18,883 | 1,063 | 19,946 | 15,900 | - | 15,900 | |
Interest receivable | 612 | - | 612 | 55 | - | 55 | |
Gross return/(loss) | 19,495 | (151,439) | (131,944) | 15,955 | 321,743 | 337,698 | |
Management fee | (866) | (3,463) | (4,329) | (815) | (3,260) | (4,075) | |
Other administrative expenses | (835) | 48 | (787) | (685) | (48) | (733) | |
Net return/(loss) before finance costs and taxation | 17,794 | (154,854) | (137,060) | 14,455 | 318,435 | 332,890 | |
Finance costs | (651) | (2,607) | (3,258) | (385) | (1,539) | (1,924) | |
Net return/(loss) before taxation | 17,143 | (157,461) | (140,318) | 14,070 | 316,896 | 330,966 | |
Taxation | (2,943) | (326) | (3,269) | (2,385) | - | (2,385) | |
Net return/(loss) after taxation | 14,200 | (157,787) | (143,587) | 11,685 | 316,896 | 328,581 | |
Return/(loss) per share | 7.42p | (82.45)p | (75.03)p | 5.97p | 161.80p | 166.77p | |
The dividends payable in respect of the year ended 31st December 2022 amount to 7.25p (2021: 7.0p) per share, costing £13,746,000 (2021: £13,604,000). Details of dividends paid and proposed are given in note 10 on page 78 of the Annual Report.
All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the year.
The 'Total' column of this statement is the profit and loss account of the Company and the 'Revenue' and 'Capital' columns represent supplementary information prepared under guidance issued by the Association of Investment Companies.
The net return/(loss) after taxation represents the profit/(loss) for the year and also the total comprehensive income.
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31ST DECEMBER 2022
Called up |
| Capital |
|
|
| |
share | Share | redemption | Capital | Revenue |
| |
capital | premium | reserve | reserves | reserve | Total | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
At 31st December 2020 | 14,082 | 151,850 | 8,151 | 1,006,007 | 31,432 | 1,211,522 |
Repurchase of shares into Treasury | - | - | - | (30,751) | - | (30,751) |
Net return | - | - | - | 316,896 | 11,685 | 328,581 |
Dividends paid in the year (note 3) | - | - | - | - | (13,232) | (13,232) |
At 31st December 2021 | 14,082 | 151,850 | 8,151 | 1,292,152 | 29,885 | 1,496,120 |
Repurchase of shares into Treasury | - | - | - | (35,032) | - | (35,032) |
Net (loss)/return | - | - | - | (157,787) | 14,200 | (143,587) |
Dividends paid in the year (note 3) | - | - | - | - | (13,418) | (13,418) |
At 31st December 2022 | 14,082 | 151,850 | 8,151 | 1,099,333 | 30,667 | 1,304,083 |
STATEMENT OF FINANCIAL POSITION
AS AT 31ST DECEMBER 2022
2022 | 2021 | |
£'000 | £'000 | |
Fixed assets |
|
|
Investments held at fair value through profit or loss | 1,381,109 | 1,568,739 |
Current assets | ||
Debtors | 938 | 701 |
Cash and cash equivalents | 34,884 | 28,355 |
| 35,822 | 29,056 |
Current liabilities | ||
Creditors: amounts falling due within one year | (30,083) | (28,205) |
Net current assets | 5,739 | 851 |
Total assets less current liabilities | 1,386,848 | 1,569,590 |
Creditors: amounts falling due after more than one year | (82,765) | (73,470) |
Net assets | 1,304,083 | 1,496,120 |
Capital and reserves | ||
Called up share capital | 14,082 | 14,082 |
Share premium | 151,850 | 151,850 |
Capital redemption reserve | 8,151 | 8,151 |
Capital reserves | 1,099,333 | 1,292,152 |
Revenue reserve | 30,667 | 29,885 |
Total shareholders' funds | 1,304,083 | 1,496,120 |
Net asset value per share - debt at par | 690.3p | 771.9p |
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31ST DECEMBER 2022
| 2022 | 2021 |
| £'000 | £'000 |
Net cash outflow from operations before dividends and interest | (2,444) | (7,079) |
Dividends received | 16,413 | 13,093 |
Interest received | 481 | 55 |
Overseas tax recovered | 167 | 240 |
Loan interest paid | (906) | (679) |
Private placement interest paid | (2,035) | (1,214) |
Net cash inflow from operating activities | 11,676 | 4,416 |
Purchases of investments | (496,876) | (722,307) |
Sales of investments | 540,264 | 744,691 |
Settlement of foreign currency contracts | - | 22 |
Net cash inflow from investing activities | 43,388 | 22,406 |
Dividends paid | (13,418) | (13,232) |
Repayment of bank loan | (78,558) | (25,325) |
Draw down of bank loan | 78,596 | - |
Draw down of private placement loan | - | 25,643 |
Repurchase of shares into Treasury | (35,036) | (30,747) |
Net cash outflow from financing activities | (48,416) | (43,661) |
Increase/(decrease) in cash and cash equivalents | 6,648 | (16,839) |
Cash and cash equivalents at start of year | 28,355 | 43,360 |
Unrealised loss on foreign currency cash and cash equivalents | (119) | 1,834 |
Cash and cash equivalents at end of year | 34,884 | 28,355 |
Cash and cash equivalents consist of: | ||
Cash and short term deposits | 1,079 | 36 |
Cash held in JPMorgan US Dollar Liquidity Fund | 33,805 | 28,319 |
Total | 34,884 | 28,355 |
Reconciliation of net debt
As at |
| Other | As at | |
31st December |
| non-cash | 31st December | |
2021 | Cash flows | charges | 2022 | |
£'000 | £'000 | £'000 | £'000 | |
Cash and cash equivalents | ||||
Cash | 36 | 1,043 | - | 1,079 |
Cash equivalents | 28,319 | 5,605 | (119) | 33,805 |
28,355 | 6,648 | (119) | 34,884 | |
Borrowings | ||||
Debt due within one year | (27,396) | (38) | (1,662) | (29,096) |
Debt due after one year | (73,470) | - | (9,295) | (82,765) |
(100,866) | (38) | (10,957) | (111,861) | |
Net debt | (72,511) | 6,610 | (11,076) | (76,977) |
Other non-cash charges relate to amortisation adjustment on borrowings and foreign exchange gains/(losses).
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31ST DECEMBER 2022
1. Accounting policies
(a) General information and basis of accounting
The Company is a closed-ended investment company incorporated in the UK. The address of its registered office is at 60 Victoria Embankment, London, EC4Y 0JP.
The financial statements are prepared under the historical cost convention, modified to include fixed asset investments at fair value, in accordance with the Companies Act 2006, United Kingdom Generally Accepted Accounting Practice ('UK GAAP'), including FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (the 'SORP') issued by the Association of Investment Companies in July 2022.
All of the Company's operations are of a continuing nature.
The Directors have undertaken a rigorous review of the Company's ability to continue as a going concern. The Board has, in particular, considered the impact of market volatility since the Covid-19 outbreak, the ongoing conflict between Ukraine and Russia, and does not believe the Company's going concern status is affected. The Company's assets, the vast majority of which are investments in quoted securities which are readily realisable, exceed its liabilities significantly under all stress test scenarios reviewed by the Board. Gearing levels and compliance with borrowing covenants are reviewed by the Board on a regular basis. The Directors have also assessed the ability of the Company to repay the amount drawn down under its revolving credit facility, which expires in August 2025, and are satisfied as to its ability to do so on account of the ability of the Company to raise new finance via loans or share issuances, or alternatively through the realisation of investments in the Company's highly liquid quoted securities. This review also took into consideration the principal and emerging risks described on pages 42 to 44 of the Annual Report, including the outlook for the US economy, US equity markets and for investment trusts. Furthermore, the Directors are satisfied that the Company's key third party service providers have in place appropriate business continuity plans to ensure their operational resilience and the performance of these service providers is reviewed at least annually by the Management Engagement Committee. Accordingly, the financial statements have been prepared on the going concern basis as it is the Directors' reasonable expectation that the Company has adequate resources to continue in operational existence for a period of at least 12 months from the date of approval of the financial statements.
The policies applied in these financial statements are consistent with those applied in the preceding year.
2. Return/(loss) per share
2022 | 2021 | |
£'000 | £'000 | |
Revenue return | 14,200 | 11,685 |
Capital (loss)/return | (157,787) | 316,896 |
Total (loss)/return | (143,587) | 328,581 |
Weighted average number of shares in issue during the year | 191,374,674 | 195,855,208 |
Revenue return per share | 7.42p | 5.97p |
Capital (loss)/return per share | (82.45)p | 161.80p |
Total (loss)/return per share | (75.03)p | 166.77p |
The total return per share represents both basic and diluted return per share as the Company has no dilutive shares.
3. Dividends
(a) Dividends paid and proposed/declared
2022 | 2021 | |
£'000 | £'000 | |
Dividends paid | ||
2021 Final dividend of 4.50p (2020: 4.25p) | 8,646 | 8,350 |
2022 Interim dividend of 2.50p (2021: 2.50p) | 4,772 | 4,882 |
Total dividends paid in the year | 13,418 | 13,232 |
Dividends declared | ||
2022 Final dividend of 4.75p (2021: 4.50p) | 8,974 | 8,722 |
All dividends paid and declared in the period have been funded from the Revenue Reserve.
The dividend proposed in respect of the year ended 31st December 2021 amounted to £8,722,000. However, the amount paid amounted to £8,646,000 due to shares repurchased after the balance sheet date but prior to the share register record date.
In accordance with the accounting policy of the Company, the dividend declared in respect of the year ended 31st December 2022, will be reflected in the financial statements for the year ending 31st December 2023.
(b) Dividend for the purposes of Section 1158 of the Corporation Tax Act 2010 ('Section 1158')
The requirements of Section 1158 are considered on the basis of dividends declared in respect of the financial year, shown below.
The revenue available for distribution by way of dividend for the year is £14,200,000 (2021: £11,685,000).
2022 | 2021 | |
£'000 | £'000 | |
2022 Interim dividend of 2.5p (2021: 2.50p) | 4,772 | 4,882 |
2022 Final dividend of 4.75p (2021: 4.50p) | 8,974 | 8,722 |
Total | 13,746 | 13,604 |
The revenue reserve after payment of the final dividend will amount to £21,693,000 (2021: £21,163,000).
4. Net asset value per share
The net asset value per Ordinary share and the net asset value attributable to the Ordinary shares at the year end follow. These were calculated using 188,917,810 (2021: 193,822,176) Ordinary shares in issue at the year end (excluding Treasury shares).
2022 | 2021 | |||
Net asset value attributable | Net asset value attributable | |||
£'000 | pence | £'000 | pence | |
Net asset value - debt at par | 1,304,083 | 690.3 | 1,496,120 | 771.9 |
Add: amortised cost of US$65 million 2.55% | ||||
Private Placement Feb 2031 | 53,723 | 28.4 | 47,679 | 24.6 |
Less: fair value of US$65 million 2.55% | ||||
Private Placement Feb 2031 | (45,913) | (24.3) | (49,359) | (25.5) |
Add: amortised cost of US$35 million 2.32% | ||||
Private Placement Oct 2032 | 29,042 | 15.4 | 25,791 | 13.3 |
Less: fair value of US$35 million 2.32% | ||||
Private Placement Oct 2032 | (23,522) | (12.5) | (25,756) | (13.3) |
Net asset value - debt at fair value | 1,317,413 | 697.3 | 1,494,475 | 771.0 |
Status of results announcement
2021 Financial Information
The figures and financial information for 2021 are extracted from the published Annual Report and Financial Statements for the year ended 31st December 2021 and do not constitute the statutory accounts for the year. The Annual Report and Financial Statements have been delivered to the Registrar of Companies and included the Report of the Independent Auditors which was unqualified and did not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006.
2022 Financial Information
The figures and financial information for 2022 are extracted from the Annual Report and Financial Statements for the year ended 31st December 2022 and do not constitute the statutory accounts for that year. The Annual Report and Financial Statements include the Report of the Independent Auditors which is unqualified and does not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006. The Annual Report and Financial Statements will be delivered to the Register of Companies in due course.
Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.
31st March 2023
For further information:
Priyanka Vijay Anand,
JPMorgan Funds Limited 020 7742 4000
JPMORGAN FUNDS LIMITED
ENDS
A copy of the annual report will shortly be submitted to the FCA's National Storage Mechanism and will be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism
The annual report will shortly be available on the Company's website at www.jpmamerican.co.uk where up-to-date information on the Company, including daily NAV and share prices, factsheets and portfolio information can also be found.