TIDMJAM
RNS Number : 7108T
JPMorgan American IT PLC
22 March 2019
LONDON STOCK EXCHANGE ANNOUNCEMENT
JPMORGAN AMERICAN INVESTMENT TRUST PLC
FINAL RESULTS FOR THE YEARED 31ST DECEMBER 2018
Legal Entity Identifier: 549300QNAI4XRPEB4G65
Information disclosed in accordance with the DTR 4.1.3
CHAIR'S STATEMENT
Returns to investors in US equities for the year to 31st
December 2018 were muted. The S&P 500 Index on a total return
basis fell 4.4% for US investors. Sterling weakness over the year
had the effect of converting this negative dollar performance into
a small but positive return of 1.3% for UK investors. Over the
year, your Company underperformed its benchmark on a net asset
value cum-income, with debt at fair value ('NAV') per share basis,
returning 0.6%. The discount of the share price to NAV (calculated
using the cum-income net asset value, with debt at fair) widened
marginally, from 4.3% to 5.2%, producing a total return to
shareholders for the year of -0.2%.
Performance Attribution
The Company's objective is to achieve capital growth from North
American investments through outperformance of the Company's
benchmark, which is the S&P 500 Index (with both NAV and
benchmark measured in sterling total return terms and net of the
effects of withholding tax).
As can be seen from the attribution report detailed in the
Investment Manager's Report below, the Company's large cap
portfolio detracted from relative returns. The small cap allocation
neither added nor detracted from returns. Gearing added to returns,
with a more active approach to tactical gearing levels by the
Company bearing fruit. It is disappointing that the large cap
strategy has again underperformed, notably in the second half of
year which was a period of heightened volatility in which returns
on the S&P index swung by some 20% from high to low. It is
interesting to observe that while the relative returns for the year
are disappointing, your Company's returns are above the median
performing fund in our peer group demonstrating the challenge of
generating outperformance in the US equity market.
Review of Large Cap Investment Process
In recent years, the Company's large cap investment process has
undergone a process of evolution. As I referred to in my Chairman's
statement last year, this included a reduction in the number of
holdings in the large cap portfolio and reducing the size of the
portfolio tail, resulting in a higher-conviction portfolio.
In the latter stages of the year under review the Board was
informed by the Manager that it believed that the current large cap
investment strategy did not, in their view, represent the best of
the US equity investment strategies they had available and they
suggested a number of alternative strategies that might represent a
replacement.
As a result your Board has undertaken a review of the options
available for the large cap portfolio, which represents the vast
majority of your Company's asset base. This wide-ranging review
aimed to identify an investment strategy that offers attractive
prospects for the Company, maintaining its 'core' US exposure,
which is important to existing shareholders, while offering the
potential to generate returns that will prove attractive to new and
existing investors alike.
This review has seen your Board undertake a substantial exercise
involving detailed reviews and discussions with the Manager of a
range of strategies and additional due diligence visits to their
investment teams in New York at which the Board questioned a broad
range of investment professionals from junior analysts to the
senior investment managers. The Board has also taken advice in the
course of this review. I would like to thank my fellow Board
members for their time, careful enquiry and diligence throughout
this process.
The Proposed New Investment Process and Investment Policy
Subject to shareholders approving the new Investment Policy at
the Company's Annual General Meeting to be held on 2nd May 2019
('AGM'), it is proposed that the large cap component of your
Company will in the future adopt a higher conviction approach
combining the best ideas from the Manager's value and growth
investment teams.
This strategy, described by the Manager as 'Equity Focus' with
over $2.3 billion under management, uses an unconstrained bottom-up
approach to build a portfolio of high quality companies across the
value and growth spectrum. For value companies, the Manager seeks
businesses with durable franchises, shareholder-friendly management
and strong free cash flows. From among growth companies, the
portfolio will include companies with a large addressable market, a
sustainable competitive advantage and a proven record of delivering
their business plans.
This investment approach would see the large cap element of your
Company's asset base invested in a portfolio typically of some 30
to 40 stocks. The value and growth components of the portfolio
would be approximately equal, with a maximum tilt in either
direction of 60:40.
New Management Team
The co-lead managers of the new focused approach to large cap
equity investment will be Jonathan Simon and Tim Parton.
Jonathan Simon is a Managing Director in the Manager's US Equity
Group and currently manages a number of the US funds that follow a
value mandate as well as being co-lead manager of the Manager's
Equity Focus strategy. He has been an employee of the Manager since
1980 and holds an MA in mathematics from Oxford University.
Tim Parton is also a Managing Director in the US Equity Group;
he manages a number of growth strategies including the Growth
Advantage Fund and, since 28th February 2017, has been a co-manager
of the Manager's Equity Focus strategy alongside Jonathan. Tim
holds a B.Sc in economics and accounting from the University of
Bristol and is a member of the New York Society of Security
Analysts and a CFA charterholder.
They have, respectively, over 38 and 32 years of investment
management experience and are supported by a local team of over 35
research analysts with specific sector research responsibilities
who are responsible for the idea generation and ongoing monitoring
of companies within their sphere of expertise.
The Proposed Investment Process in Detail
The proposed investment approach can be summarised as
follows:
Idea Generation Fundamental analysis Portfolio Constructions
-- Source the best ideas from Value -- Bottom-up fundamental
the Value and Growth research process
teams
-- Run proprietary quantitative -- High quality durable -- Concentrated portfolio
screens on Russell 1000 Value franchises typically of 30-40 stocks
and Growth index constituents
-- Company meetings -- Management teams -- Position sizes determined
with the ability to by conviction levels
execute
-- Industry conferences -- Trading at a discount - Quality of business
to fair value
Growth - Risk/reward
-- Size the market - Diversification impact
opportunity on portfolio
-- Analyse competitive -- Maximum single stock
dynamics exposure of 8%
-- Validate investment
thesis
Value Ideas
Value stocks within the portfolio are selected from an initial
universe of companies with a market capitalisation in excess of $1
billion and a P/E ratio of below 20, which currently includes
approximately 700 stocks.
After identifying companies that exhibit these basic investment
credentials, the process moves to in-house research analysing the
market in which a company operates, its franchise and competitive
positioning, financial and operational results, and importantly,
the quality of its management and its behaviour towards
shareholders. Potential investments are assessed over a two or
three year time horizon with attention focusing on those companies
which the Manager expects to be substantially re-rated over that
timeframe.
Overlying this process is a rigorous analysis of valuation that
frames the price the Manager is willing to pay for an investment,
and quantifies the potential upside and the price at which the
Manager would be prepared to sell.
Growth Ideas
Growth stocks are sourced from a universe of over 800 securities
which are screened for a number of factors including earnings
revisions, stock price momentum and valuation measures including
P/E ratio and Price/Free Cash Flow. Systematic screening results in
a universe of some 150 stocks which are subjected to detailed
analysis and face-to-face meetings with management by the
investment managers and sector analysts teams.
This analysis is designed to identify companies deemed capable
of achieving growth that exceeds market expectations and includes a
detailed review of characteristics including an assessment of the
industry's competitive dynamics, the attractiveness and resilience
of the company's business model, the strength and track record of
management and the company's financial strength.
Portfolio Construction
Responsibility for portfolio construction and risk management
rests with the investment managers who construct a concentrated
core portfolio from the highest ranking growth and value stocks.
Each investment manager selects securities based on their
disciplined process and investment style with position sizes based
on the strength of conviction and the allocation between the value
and growth portions is managed within a maximum tilt in either
direction of 60:40.
The value and growth portions may include securities from all
sectors, but will tend to own the majority of positions with
sectors traditionally tied to their respective investment styles,
for example financial services for value and technology for growth.
The investment managers will also ensure that the portfolio is
managed within the investment guidelines and with an eye to broader
measures of investment risk including active monies, style tilts
and tracking error.
The table below shows a number of quantitative aspects of the
proposed new strategy compared with the current large cap strategy
as at 31st December 2018.
Current Large Cap Strategy Proposed Large Cap
Strategy
--------------------------------- --------------------------- -------------------
Typical Holdings Range 60-100 30-40
Maximum single stock exposure 8% 8%
Expected Tracking Error Range 2-5% 3-6%
Active Share 68% 79%
3 year realised tracking error 3.09% 4.32%
Number of holdings 60 40
Largest Absolute Sector Weight Information technology Financials (17.4%)
(20.8%)
Largest Absolute Stock Position Apple (5.7%) Microsoft (5.4%)
--------------------------------- --------------------------- -------------------
Source: JPMorgan Asset Management/Wilshire.
Sector Allocations as at 31st December 2018:
Proposed Strategy Compared with Current Large Cap Allocation
The sector allocation as at 31st December 2018 for the Equity
Focus strategy is shown in the below and compared against the
current large cap portfolio allocation and the Benchmark:
Sector Current Large Cap Proposed Large Cap Benchmark (%)
Strategy (%) Strategy (%)
Communication services 11.4 8.0 10.1
------------------ ------------------- --------------
Consumer discretionary 7.3 11.1 9.9
------------------ ------------------- --------------
Consumer staples 11.8 2.6 7.4
------------------ ------------------- --------------
Energy 7.8 6.7 5.3
------------------ ------------------- --------------
Financials 15.1 17.4 13.4
------------------ ------------------- --------------
Health care 16.7 10.6 15.5
------------------ ------------------- --------------
Industrials 5.6 9.4 9.2
------------------ ------------------- --------------
Information technology 20.8 17.2 20.1
------------------ ------------------- --------------
Materials - 8.5 2.7
------------------ ------------------- --------------
Real estate - 5.6 3.0
------------------ ------------------- --------------
Utilities 3.6 2.8 3.3
------------------ ------------------- --------------
Source: JPMorgan Asset Management/Standard & Poor's
Results
The Manager has been operating the proposed investment process
since 31st July 2011 in respect of other funds it manages. Over
this period it has generated the following results (in sterling and
before fees) which are compared with the Company's current large
cap strategy (calculated on the same basis) and the S&P 500
Index:
Annualised Performance to 31st December 2018
One Year Three Years Five Years Since
(%) (%) (%) Inception*
(%)
---------------------------- --------- ------------ ----------- ------------
Equity Focus strategy 2.35 15.18 14.40 16.34
Current Large Cap strategy 0.20 13.31 13.50 15.02
S&P 500 Total Return 1.56 14.71 14.35 15.57
---------------------------- --------- ------------ ----------- ------------
Source: JPMorgan Asset Management, Wilshire. Strategy
performance is calculated in accordance with GIPS(R) standards
where segregated mandate portfolios and/or pooled funds managed in
accordance with the strategy are grouped into a 'composite'.
*Inception date is 31st July 2011.
As at 28th February 2019, being two years since Jonathan Simon
and Tim Parton began co-managing the investment strategy, their
performance record, again in sterling and before fees, is as
follows:
Annualised Performance to 28th February 2019
Two Years (%)
---------------------------- --------------
Equity Focus strategy 8.58
Current Large Cap strategy 6.26
S&P 500 Index 7.09
---------------------------- --------------
Source: JPMorgan Asset Management, Wilshire. Strategy
performance is calculated in accordance with GIPS(R) standards
where segregated mandate portfolios and/or pooled funds managed in
accordance with the strategy are grouped into a 'composite'.
Individual calendar year performance for the proposed new
strategy is shown below. This is again calculated in sterling and
is shown before fees and against the S&P 500 Index.
Calendar Year Performance
2012 2013 2014 2015 2016 2017 2018
(%) (%) (%) (%) (%) (%) (%)
----------------------- ------ ------ ------ ------ ------ ------ ------
Equity Focus strategy 13.81 38.35 15.38 11.13 30.30 14.57 2.35
S&P 500 Total Return 10.91 29.93 20.76 7.25 33.55 11.29 1.56
Excess Return +2.90 +8.42 -5.38 +3.88 -3.25 +3.28 +0.79
----------------------- ------ ------ ------ ------ ------ ------ ------
Source: JPMorgan Asset Management, Standard & Poor's. Excess
returns are calculated on an arithmetic basis. Strategy performance
is calculated in accordance with GIPS(R) standards, where
segregated mandate portfolios and/or pooled funds, as relevant,
managed in accordance with the strategy are grouped into a
'composite'.
Continued use of Smaller Companies Portfolio and Gearing
The Company's current flexibility to invest a component of its
asset base in a portfolio of small cap equities managed by Eytan
Shapiro will be unchanged, as will the ability to use gearing to
enhance returns in accordance with the current investment
policy.
In recent years, the Board has worked with the Manager to
develop a more formal framework, incorporating quantitative and
qualitative measures that guide both the allocation to small cap
stocks and gearing levels. As the attribution table for the current
and previous financial year makes clear, these tools have
demonstrated an ability to enhance returns and will continue to
play a part in the management of the Company's assets. The Board
looks forward to working with the Manager to further refine and
enhance these tools in the future.
Garrett Fish
A change of investment process marks the end of Garrett Fish's
involvement in managing the Company's portfolio. He is moving on to
other responsibilities within J.P. Morgan that have necessitated
his departure. Garrett has been the lead investment manager of the
Company's assets for over 15 years during which time his dedication
to obtaining the best possible returns for shareholders, promoting
the Company to current and potential investors and assisting the
Board of Directors in their fiduciary obligations has been
unwavering. I am sure that shareholders will join the Board in
thanking Garrett for his long-standing commitment to the Company
and we wish him well for the future.
Fee Arrangements
Alongside the proposed changes in investment process, your Board
has negotiated an amendment to the current fees paid to the
Manager. As I mentioned in last year's Annual Report, the Company
is keen to retain its competitive cost position against rival
investment funds, including passive and actively managed open and
closed-ended funds. The introduction of MIFID II in the year, which
requires wealth managers and other investment platform providers to
disclose 'look through' costs to their underlying investors, has
reinforced the need to offer simple and value-for-money fees.
Removal of Performance Fee
In order to simplify the Company's fee offering, the Company is
removing the performance fee element of the fee, backdated to 1st
January 2019. Although performance fees may provide some incentive
to fund managers they are often seen as an unnecessary complication
by potential investors. This move is in line with shifts we have
seen across the investment trust sector in recent years, where
performance fee arrangements which were once commonplace are now
increasingly rare.
Management Fee
Your Board is also pleased to announce that the Manager has
agreed to waive its management fee for a period of nine months
commencing on 1st June 2019, which represents an amount
approximately commensurate to the underperformance arising from the
historic performance fee arrangements. Thereafter, the management
fee will resume, charged at the current rate of 0.35% on the first
GBP500 million of net assets; 0.30% on net assets above GBP500
million and up to GBP1 billion; and 0.25% on any net assets above
GBP1 billion. The Manager will also bear the costs associated with
the reorganisation of the portfolio.
The Board believes this package of fee simplification and a
short-term fee waiver should be welcomed by shareholders. Based on
the current asset base of the Company, this will result in a saving
to shareholders of some GBP2.42 million (calculated as at 20th
March 2019) over this nine month period.
Shareholder Approval for Changes to the Investment Policy
To effect the above change of investment process, some
amendments will be required to the Company's Investment Policy, for
which the Board is required to seek shareholder approval, since
they are considered material in nature. The change will result in
the number of investments in the large cap portfolio reducing from
the current 60-100 stocks to a portfolio that typically will
comprise 30-40 holdings. We are also taking the opportunity to
recommend a simplification of the constraints in place around the
small cap allocation which will see a change to the range of
allocation to small cap from 1-9.5% to 0-10%.
No other material amendments to the Company's Investment Policy
are required, and the Company's Investment Objective remains
unchanged. The changes detailed above will be put to shareholders
at the Company's Annual AGM to be held on Thursday 2nd May 2019 and
are set out in Resolution number 14. The proposed new Investment
Policy is set out in full in the Appendix in the Company's Annual
Report & Financial Statements for the year ended 31st December
2018 ('2018 Annual Report'). The amendments to the Investment
Policy, if approved, will take effect from 1st June 2019. The Board
recommends shareholders vote in favour of this resolution. If
shareholder approval is not obtained at the AGM, the Company will
continue to comply with its current investment process and
Investment Policy.
Board Review of the Manager
As in prior years, the Board visited the Manager's offices in
New York where it held meetings with Garrett Fish and the manager
of the smaller companies portfolio, Eytan Shapiro. The Board
further met with J.P. Morgan's senior management and a number of
external speakers, including the British Consul General in New
York, who provided considered views and analysis on the economic
and political outlook for the US. As mentioned above, the Board
also spent additional time in New York reviewing the Company's
large cap strategy.
Alongside the management of the portfolio, 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. The Board
concluded that it was generally satisfied with J.P. Morgan's
performance. Thus, taking all factors into account, the Board
concluded that the ongoing appointment of the Manager is in the
continuing interests of shareholders.
Should shareholders approve the change in Investment Policy, the
performance of this new large cap investment approach will be
pivotal to the Board's assessment of the future appointment of the
Manager.
Gearing Management
The use of gearing to enhance returns is a key differentiating
feature of investment trusts. As gearing can introduce risk as well
as enhancing returns, the Board maintains strong oversight of the
Company's gearing policy and the source and use of leverage. For
the first five months of the year the Company's gearing remained
within the Board's strategic level of 10%, plus or minus 2%.
In June the Company's GBP50,000,000 6.875% debenture matured and
was repaid. At the same time an assessment of market conditions
warranted a move in the tactical level of gearing to 5%, plus or
minus 2%. In October, this tactical gearing was again amended in
the light of market conditions, to a gearing level of 0%, plus or
minus 2%, where it currently remains. It is encouraging to see that
these decisions contributed to the positive contribution to
performance from gearing over the course of the year.
While the Company is currently ungeared, it remains fully
invested in US equities and the Board believes that the judicious
application of gearing remains a significant tool to enhance
shareholder returns. The Company continues to review the
appropriate gearing level on a regular basis using a variety of
qualitative and quantitative tools and is exploring a range of
potential gearing sources to ensure it has the necessary facilities
in place when higher levels of gearing are deemed appropriate.
Ongoing Charges Ratio ('OCR')
This year the Company saw a full year's benefit of the lower
fees negotiated in 2017, with the result that the OCR has dropped
from 0.55%, which was already the lowest in the Company's sector,
to 0.38%, a significant reduction and a demonstration of your
Board's commitment to obtaining the best value for money from its
service providers. We will continue to focus actively on the cost
base of the Company across all of its functions.
In line with recent years, we repeat the table below
illustrating the movements in the capital base of the Company,
showing the returns generated from our investing activities and the
effect of costs, dividends and buy-backs. By combining items found
in the revenue statement and items charged to capital, we believe
it provides a clear summary of your Company's affairs for the
year.
The Company's biggest cost remains the management fees at GBP3.2
million (2017: GBP4.6 million). No performance fee was payable. The
Company's NAV total return underperformed the total return of the
S&P 500 Index resulting in an addition of GBP776,121 to the
negative performance fee balance of GBP1,603,204 at the start of
the year. Under the current terms of the Management Agreement the
total amount of GBP2,379,325 is carried forward and offset against
future outperformance. Full details of the mechanics of the
performance fee payments are detailed in the 2018 Annual
Report.
As highlighted above, investors have the opportunity to vote at
the forthcoming AGM on a change of Investment Policy. If approved,
the Company's management fees will be simplified through the
elimination of the performance fee and the base management fee
charged by the Manager will be waived for a period of nine months.
On a pro-forma basis, using the 2018 asset base and other costs,
this cut will result in an estimated OCR for the 2019 financial
year of 0.20% and for the 2020 financial year of 0.33%. Your
Company will continue to keep fees actively under review in an
effort to maintain its current competitive OCR.
2018 2017
Percentage Percentage
of opening of opening
GBP'000s net assets GBP'000s net assets
------------------------------------ --------- ----------- ---------- -----------
Net assets at start of year 980,430 100.00 985,216 100.00
(Decrease)/Increase in net assets
during the year
from investing (4,886) (0.50) 97,960 9.94
Brokerage fees/commissions and
other dealing charges (164) (0.02) (226) (0.02)
------------------------------------ --------- ----------- ---------- -----------
Net investment performance 975,380 99.48 1,082,950 109.92
Income received from investing
-
net of withholding tax 18,722 1.91 16,594 1.68
Interest received 452 0.05 177 0.02
Dividends paid to shareholders (12,862) (1.31) (12,065) (1.22)
Interest paid on borrowings (3,242) (0.33) (4,545) (0.46)
Currency gains on hedge 532 0.05 2,809 0.29
Currency (losses)/gains on USD
loans (3,471) (0.35) 4,684 0.48
Management fee (3,191) (0.33) (4,644) (0.47)
Directors' fees (172) (0.02) (173) (0.02)
Other costs of the Company (465) (0.05) (480) (0.05)
Repurchase of shares into Treasury (52,507) (5.36) (104,877) (10.65)
------------------------------------ --------- ----------- ---------- -----------
Net assets at end of year 919,176 93.75 980,430 99.52
------------------------------------ --------- ----------- ---------- -----------
Share Price and Premium/Discount
Throughout the year, the Company's shares have traded at a
discount to the NAV. Consistent with our statements made in
previous years, the Board is committed to buy-back shares when they
stand at anything more than a small discount. As a result, the
Company has continued with its buy back policy, repurchasing
12,605,163 shares into Treasury, at a cost of GBP52.5 million,
representing 5.5% of the Company's issued share capital at the
beginning of 2018. Whilst this is approximately one half of the
amount spent on buy-backs in the previous year it does not
represent any reduction in the Board's commitment to buy-back
shares, but rather reflects the balance of supply and demand for
the Company's shares in the period.
These shares were purchased at an average discount to NAV,
measured using a cum-income, debt at fair value measure of 5.1%,
producing a modest accretion to the NAV for continuing
shareholders.
The Company will again be asking shareholders to approve the
repurchase of up to 14.99% of the Company's shares at the AGM. We
will also be seeking shareholder permission to issue shares, where
Directors are confident of sustainable market demand. The
authority, if approved, will allow the Company to sell up to 10% of
its issued share capital from Treasury. The Company will only sell
shares at a price in excess of the estimated NAV including income
with the value of the debt deducted at market price.
Dividends
The Company paid an interim dividend in respect of the 2018
financial year of 2.5p on 5th October 2018. Subject to shareholder
approval at the AGM, a final dividend of 4.0p will be paid on 14th
May 2019 to shareholders on the register on 12th April 2019, making
a total of 6.5p per share, compared with last year's total of 5.5p
per share, representing an increase of 18.2%.
After the payment of the proposed final dividend, we will have a
balance in the revenue reserves of GBP21.0 million (equivalent to
9.6p per share (2017: 7.7p) or 1.5 times (2017: 1.5 times) the
current dividend).
The Company's objective is to achieve capital growth from North
American investments. Although capital growth is the primary aim of
the Company, the Board is aware that dividend receipts are an
important element of shareholder returns. As your Company invests
in North American equities, the dividends received from our
portfolio are affected by changes in the dividends paid by American
companies and the dollar/sterling exchange rate, both of which can
contribute to volatility in the Company's ability to pay dividends.
Through the prudent retention of an element of net income on a year
by year basis, your Company has built a healthy revenue reserve
which we hope will be able to support dividend payments when
corporate pay outs are less healthy in the short term, or if there
are other short term fluctuations in the revenue account. If
shareholders vote to adopt the new Investment Policy, the Board
estimates there will be a material reduction in ongoing revenue per
share generated by the portfolio. The Board will consider the best
way to manage this outcome in conjunction with an assessment of the
use of existing retained revenue reserves.
The Board
The Board has procedures in place to ensure that the Company
complies fully with the AIC Code on Corporate Governance and the UK
Corporate Governance Code, where applicable. The Board further
acknowledges the new UK Corporate Governance Codes and is taking
steps to ensure compliance. The results of this year's Board
evaluation process confirmed that all Directors possessed the
experience and attributes to support a recommendation to
shareholders that they retire and seek re-appointment at the
Company's forthcoming AGM. Directors' fees have not been increased
this year.
With effect from 1st January 2019, the Board established a new
Committee, a Management Engagement Committee ('MEC'). Although the
duties of the MEC were previously completed by the Board as a
whole, the Committee was established to bring the Company into line
with corporate governance best practice. The key duties of the MEC
will be to evaluate the Manager's performance and review the fee
arrangements of the Manager, and ultimately to recommend to the
Board the continuing appointment of the Manager or otherwise. For
full details of the MEC's duties, its terms of reference can be
found on the Company's website.
The Board has decided to increase the size of its compliment
from five to six, and during the course of the year will be
initiating a process to appoint an additional director.
Shareholders will be kept informed when an appointment is
concluded.
AGM and Shareholder Contact
This year's AGM is the Company's 103rd and it will be held on
Thursday, 2nd May 2019 at 2.30 p.m. at 60 Victoria Embankment,
London EC4Y 0JP. As in previous years, in addition to the formal
part of the meeting, there will be a presentation from Garrett
Fish, who will answer questions on the portfolio and performance
over the past year. There will also be a presentation from Fiona
Harris, one of the Manager's investment specialists who will
further describe the proposed large cap investment strategy before
shareholders have an opportunity to vote on its adoption. After the
meeting there will also be an opportunity to meet the Board,
Garrett, Fiona and other representatives of the Manager. I look
forward to welcoming as many shareholders as possible to this
meeting. Throughout the year and in addition to the opportunity to
hear from shareholders at the AGM, I very much encourage
shareholders to get in touch to share their views. I can be
contacted through our Company Secretary, whose details can be found
in the 2018 Annual Report and at the end of this announcement.
Outlook
The UK/EU Brexit process continues to grind on at the time of
writing. The impact of the final outcome on Brexit will likely
affect the Company principally through the sterling/dollar exchange
rate, and its translation effect on capital and revenue from US
dollars to sterling. It is not the Board's policy to anticipate or
attempt to hedge these effects. Beyond noting this effect, no
advance special Brexit preparations are deemed necessary.
Last year I suggested that it would be prudent to expect
occasional bouts of market volatility in 2018. In the event,
following four hikes in interest rates by the US Federal Reserve
during the year, in combination with other factors affecting market
sentiment, this proved to be the case, most notably in the final
quarter of the year. 2019 has begun with a significant upward
retracement of those declines. Meanwhile, the US economy has
continued to show positive growth, on the way to becoming the
longest expansion on record, assisting continuing positive company
profit performance.
The Manager has moved the portfolio to a more defensive
positioning consistent with the risks which result from a late
cycle expansion environment. That said, the Federal Reserve appears
to have become more comfortable with the level of current interest
rates, suggesting less reason for unforeseen rises in 2019. The
absence of upward inflation pressures will have assisted them in
this view. Nevertheless, the age and extent of the present market
increase since 2009 does need to be respected and will warrant
further caution in 2019.
The Board is hopeful the intended change in Investment Policy to
a more concentrated stock picking style of portfolio construction
will assist in navigating whatever conditions the markets produce
during the year. The joint lead investment managers between them
have certainly managed through a wide variety of market conditions
during their respective careers. This should be a matter of some
comfort to shareholders in the present environment.
Dr Kevin Carter
Chair
22nd March 2019
INVESTMENT MANAGERS' REPORT
Market Review: a challenging year
The year started off with a short-lived uptick in volatility,
partially driven by concerns over rising interest rates, the
potential impact of trade conflicts and the long-term implications
of the sweeping US tax reforms that were signed into law at the end
of 2017. Day-to-day price movements saw a significant departure
from levels seen in 2017. In the first quarter of 2018, the S&P
500 saw six trading days with +/-2% moves, compared to 2017 in
which there were no days with that level of price change.
Our benchmark index, the S&P 500 Index, ended 2018 up 1.3%
in sterling terms, after a challenging fourth quarter which started
with a rout in US (and global) stocks in October and was
characterised by heightened market swings throughout the period.
The S&P 500 is divided into eleven sectors and only three of
these ended the year in positive territory, namely Healthcare,
Utilities, and Consumer Discretionary. The weakest performers were
the Energy, Communication Services and Materials sectors. Large cap
stocks greatly outperformed small cap stocks and growth
outperformed value.
The market sell-off in the fourth quarter of 2018 was painful
but widely expected. Global markets were finally unable to
withstand the increasingly difficult economic and geopolitical
headwinds at play and stock prices fell in response, arguably to
more reasonable levels. This theory is backed up when we look at
the value of the S&P 500 based on the predicted earnings per
share of its constituent stocks, and as measured by the Forward
Price to Earnings (P/E) ratio. On this basis, the S&P 500 ended
2018 below its 25-year average. Whilst this may indicate
deteriorating sentiment towards these companies' prospective growth
potential, for us it also enhances the potential of finding
quality, attractively priced companies.
The overall economic environment had been strong over the course
of the first half of the year. Economic growth remained stable and
monthly data on retail sales, homebuilding, durable goods and other
economic indicators all delivered healthy figures. The second half
of the year also started strongly as earnings growth was driven by
record margins, with most companies exceeding earnings and revenue
estimates for the second quarter. Robust corporate profits
partially tempered the effects of a flattening yield curve (often
seen when slower economic growth or interest rate hikes are
anticipated) and rising trade uncertainty over the course of the
third quarter.
The last three months of the year, however, witnessed a
significant drawdown, as referenced above. But, despite weaker
equity returns, the US economy continued to flex its muscles, with
yet another strong quarter of earnings growth. We are optimistic
that generally positive commentary from company management teams
should potentially limit equity downside risk. Economic indicators
still continue to remain mainly positive, with the exception of the
yield curve. The Federal Reserve increased rates four times in 2018
and while an inverted yield curve has often been interpreted as an
indicator for recessions, there is, as yet, little indication that
this risk will materialise. While reassured by good signs such as
consumer and small business confidence remaining at high levels,
wages rising across income levels, and December same store retail
sales being robust, we remain mindful of the pressure that rising
rates, tariffs, and the partial government shutdown could put on
stocks.
Overall Asset Allocation and Performance: defensive
positioning
The Company's net asset value rose by 0.6% in total return terms
in 2018. This return was below the S&P 500 Index, which rose
1.3% in sterling terms.
The investment management team is responsible for managing the
allocation between the large and the small cap portfolios, together
with the levels of cash and gearing.
In 2018, the Company's gearing decreased from 9% at the
beginning of the year to -1% at year end. The level of gearing has
been adjusted at regular intervals within the gearing guidelines
laid down by the Board. With the market only rising just over 1%
last year, the cost of the debt was greater than the market return.
Despite this potential drag on returns, the reduction in debt
levels in two tranches means we were still able to generate a
positive performance from gearing during the year as gearing was
reduced following periods of positive market returns and before the
worst of the late 2018 sell-off.
The weighting in the small cap portfolio started 2018 at 4.9%
and we reduced it to 1% by the end of the year. Our allocation tool
led us to trim from our small cap allocation during the year as
this sector of the market became a less attractive investment on
valuation grounds. Furthermore, we slightly reduced our number of
holdings in the large cap portfolio to optimise the performance in
this area by focusing on our core portfolio. We believe that our
ability to move between the two segments enhances returns to
shareholders over the long term and also helps to balance our
overall risk. As detailed in the table below our large cap
portfolio modestly detracted for the year, while our smaller
companies' portfolio was flat.
PERFORMANCE ATTRIBUTION
for the year ended 31st December 2018
% %
-------------------------------------------------- ----- -----
Contributions to total returns
-------------------------------------------------- ----- -----
Net asset value total return (in sterling terms) 0.6
-------------------------------------------------- ----- -----
Benchmark total return (in sterling terms) 1.3
-------------------------------------------------- ----- -----
Excess return -0.7
-------------------------------------------------- ----- -----
Contributions to total returns
-------------------------------------------------- ----- -----
Large cap portfolio -1.0
-------------------------------------------------- ----- -----
Allocation effect -
-------------------------------------------------- ----- -----
Selection effect -1.0
-------------------------------------------------- ----- -----
Small cap portfolio -
-------------------------------------------------- ----- -----
Allocation and selection effect -
-------------------------------------------------- ----- -----
Gearing (including change in the
-------------------------------------------------- ----- -----
fair value of the debenture) 0.8
-------------------------------------------------- ----- -----
Cost of debt -0.3
-------------------------------------------------- ----- -----
Currency hedge -0.1
-------------------------------------------------- ----- -----
Share issuance/buy back 0.3
-------------------------------------------------- ----- -----
Management fee/expenses -0.4
-------------------------------------------------- ----- -----
Total -0.7
-------------------------------------------------- ----- -----
Source: JPMAM and Morningstar. All figures are on a total return
basis.
Performance attribution analyses how the Company achieved its
recorded performance relative to its benchmark index.
Large Companies Portfolio: identifying quality and value
Our investment methodology continued to focus on investing in
high quality, reasonably valued companies. When constructing our
portfolio, we have used the core tenets of behavioural finance to
narrow our investment universe. This theory indicates that, on
average, high quality and fast growing, cheap stocks with good
news-flow outperform lower quality, slow growing, and expensive
stocks with bad news-flow. Taking this approach, we rank the stocks
in our universe to uncover those companies that are high quality,
are attractively valued and also exhibiting improving sentiment
(momentum). We then undertake fundamental research to validate the
rankings, leading us to invest in quality companies that exhibit
the requisite characteristics.
2018 was not a supportive investment environment for our
strategy, unlike 2017 when the Company outperformed the S&P 500
Index. The large companies' portfolio posted a positive return but
underperformed the benchmark over the year. This underperformance
was mainly driven by unrewarded stock selection within the
Financials, Consumer Discretionary and Healthcare sectors.
Within Financials, our overweight position in insurer AIG was
among the largest detractors in the sector. Shares of AIG detracted
due to pre-tax catastrophe losses from Typhoons Jebi and Trami in
Japan, along with Hurricane Florence in the US and revisions to
previous losses for California mudslides in the US. These losses
were substantially higher than AIG's market exposure would
otherwise have suggested.
Within the Consumer Discretionary sector, our underweight
position in Amazon hurt relative returns over the period. The stock
demonstrated its resilience and significantly outperformed the
market, as its increased focus on profit led to earnings growth,
boosting investor confidence. Amazon has leadership positions in
e-commerce and cloud computing, as well as a flourishing, high
margin advertising business and long-term profit potential from
international markets.
Among individual names, not owning Pfizer in the Healthcare
sector also weighed on performance. Pfizer delivered solid
financial performance in 2018 and developed a new commercial
structure that is expected deliver higher revenue growth and drive
its future success. On the other hand, the portfolio benefitted
from strong stock selection in the Communication Services and
Energy sectors.
Within Communications Services, our overweight in Walt Disney
was among the top contributors. The stock outperformed on the back
of excitement over its forthcoming streaming service, Disney+,
which should be launching in 2019. Disney's acquisition of Twenty
First Century Fox also added to its strong films and content base.
Going forward, we believe Disney has the best collection of
traditional media assets and the greatest scale, which gives it a
high probability of success in the growing streaming market.
Furthermore, within the Energy sector, our overweight position
in the multinational ConocoPhillips and our lack of exposure to
Schlumberger both proved beneficial. ConocoPhillips' strategy of
prioritising debt reduction and capital efficiency over growth
resonated well with investors while more growth-focused names
underperformed. As for Schlumberger, a less favourable outlook for
project backlogs was compounded by unfavourable contract terms and
weakening pricing, which the company and other service peers were
forced to accept in order to maintain utilisation rates.
Among individual names, our overweight in the Information
Technology giant Microsoft was among the largest contributors. The
stock consistently outperformed the Index. The company's cloud
computing business, consisting of Office 365 and Azure, is taking
advantage of companies shifting their workloads to the cloud, in
order to drive up productivity and revenue growth. We continue to
be positive on Microsoft as we believe it is well positioned to
benefit from the continued transition to cloud computing, which has
huge momentum. Our overweight holding in health insurance company
Humana also proved particularly beneficial. The company reported
positive earnings results throughout the year which led the stock
to trade higher.
In terms of portfolio positioning, we added to our Consumer
Staples and Energy sectors, while trimming Consumer Discretionary,
Healthcare and Materials. Consumer Staples remains the largest
overweight followed by Energy and Financials. On the other hand, we
retain our underweight in the Industrials, Real Estate and
Materials sectors, as we are less excited about their long-term
growth prospects as well as unappealing valuation levels relative
to other sectors.
Smaller Companies Portfolio: stock selection beneficial
Over the year, the smaller companies portfolio generated a
positive return, which was in-line with the S&P 500. Our stock
selection in the Technology sector proved particularly beneficial
as our Software & Communications positions outperformed,
followed by the Materials & Processing sectors. Healthcare was
also a source of strength. Within Technology, several names emerged
among the top contributors, including telecommunications supplier
Ciena. Shares rose throughout the year, due to a combination of
improving fundamentals and an attractive valuation. The company is
benefitting from the tailwinds of increasing metropolitan
networking demand and the start of fifth generation (5G) mobile
networks spending.
On the other hand, our stock selection in the Financial Services
and Consumer Discretionary sectors hurt performance. Within
Consumer Discretionary, our overweight in the optical retailer
National Vision detracted despite posting strong sales comparisons
as the market focused on a lacklustre outlook and modestly lower
margins. A number of positive fundamental developments came in the
fourth quarter including a significantly expanded contact lens
distribution relationship with Walmart and improved terms on a long
term purchasing contract with their lens supplier.
Outlook
We continue to focus on the fundamentals of the US economy and
of company earnings. While continued earnings growth and strength
in economic indicators should provide support to the equity market,
we are monitoring possible economic risks that could represent
headwinds for US stocks. In particular, we continue to watch
closely the trade politics narrative, slowing global economic
growth, and the implications of rising interest rates, all of which
have the potential to add to volatility.
We anticipate that the market climate will remain testing for
some time. However, we have shifted the Trust's portfolio to a more
defensive positioning, having reduced both gearing and our small
cap exposure. We are more aware of heightened risks in the market
since we are much more likely to be at the end of the
economic/market cycle than at the beginning.
Ours is a large, actively managed investment trust, with a
proven long-term record of finding the most attractive stocks from
the world's largest stock market, even when market conditions have
challenged us. Periodic volatility may continue to shake market
sentiment, but we trust that investors will be reassured by the
performance we have delivered over time. Above all, we remain
confident that we have the resources, experience and insight to
allow our investors to capitalise on America's future growth. As
locally based specialist investors in New York, we believe we are
ideally placed to offer dynamic access to this ever-evolving
market.
Proposed Change of Investment Process
As set out in the Chairman's statement, the Company is proposing
a change in the investment strategy followed by the large cap
component of the portfolio. This new strategy represents a
continuation of the trend towards a more focused portfolio we have
put in place in recent years.
If approved by shareholders this would see the Company invest in
a more concentrated portfolio of stocks representing the best of
the Manager's growth and value investment ideas co-managed by my
colleagues Jonathan Simon and Tim Parton who bring a long track
record of identifying attractive opportunities in both the value
and growth sectors of the market. The Company will also benefit
from the substantial research and portfolio management resources
supporting the lead managers. Other aspects of the Company's
investment approach, including the allocation to small cap equities
and the use of gearing, both of which have a track record of adding
value to shareholders, will remain unchanged.
This change will also mark the end of my involvement in the
management of the Company's portfolio after over 15 years as a
named manager. I would like to thank the Board for their guidance
and support over these years and thank the many shareholders I have
been fortunate to meet in my time with the Company for their
engagement and informed questions. I wish the Board and
shareholders well for the future and have every faith that the new
strategy will prove an attractive investment proposition.
Garrett Fish
Investment Manager
22nd March 2019
PRINCIPAL RISKS
The Directors confirm that they have carried out a robust
assessment of the principal 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 has drawn up a
risk matrix, which identifies the key risks to the Company. These
are reviewed and noted by the Board. These key risks fall broadly
into the following categories:
-- 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 investment manager, who attends the
majority of Board meetings, and reviews data which details the
portfolio's risk profile. The investment manager employs the
Company's gearing within a strategic 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 report in the 2018 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 Manager: The sudden
departure of the investment manager 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. Throughout
2018, the Company's shares traded 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 l. 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 effect 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 will continue to keep under review the
impact of the UK's decision to leave the European Union. The
negotiations between the UK and European Union may introduce
further currency volatility to the Company's affairs.
TRANSACTIONS WITH THE MANAGER AND RELATED PARTIES
Details of the management contract are set out in the Directors'
Report in the 2018 Annual Report. The management fee payable to the
Manager for the year was GBP3,191,000 (2017: GBP4,644,000) of which
GBPnil (2017: GBPnil) was outstanding at the year end.
Included in administration expenses in note 6 in the 2018 Annual
Report are safe custody fees amounting to GBP9,000 (2017: GBP9,000)
payable to JPMorgan Chase Bank N.A. of which GBP2,000 (2017:
GBP2,000) 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 GBPnil (2017: GBPnil) of which GBPnil (2017:
GBPnil) 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
GBP7.9 million (2017: GBP13.7 million). Income amounting to
GBP443,000 (2017: GBP175,000) was receivable during the year of
which GBPnil (2017: GBP18,000) was outstanding at the year end.
Handling charges on dealing transactions amounting to GBP14,000
(2017: GBP11,000) were payable to JPMorgan Chase Bank N.A. during
the year of which GBP1,000 (2017: GBP3,000) was outstanding at the
year end.
At the year end, total cash of GBP53,000 (2017: GBP19,000) was
held with JPMorgan Chase Bank N.A.. A net amount of interest of
GBP1,000 (2017: GBP2,000) was receivable by the Company during the
year from JPMorgan Chase of which GBPnil (2017: GBPnil) was
outstanding at the year end.
Full details of Directors' remuneration can be found in the 2018
Annual Report.
Statement of Directors' Responsibilities
The Directors are responsible for preparing the annual report
and accounts in accordance with applicable law and regulations.
Company law requires the Directors to prepare 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 and
accounts 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 l confirm 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
and accounts 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
22nd March 2019
statement of comprehensive income
for the year ended 31st December 2018
2018 2017
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
(Losses)/gains on investments held
at
fair value through profit or loss - (5,050) (5,050) - 97,734 97,734
Net foreign currency (losses)/gains(1) - (2,939) (2,939) - 7,493 7,493
Income from investments 21,184 - 21,184 19,317 - 19,317
Interest receivable and similar
income 452 - 452 177 - 177
------------------------------------------ --------- ---------- --------- -------- -------- --------
Gross return/(loss) 21,636 (7,989) 13,647 19,494 105,227 124,721
Management fee (638) (2,553) (3,191) (929) (3,715) (4,644)
Other administrative expenses (637) - (637) (653) - (653)
------------------------------------------ --------- ---------- --------- -------- -------- --------
Net return/(loss) on ordinary activities
before finance costs and taxation 20,361 (10,542) 9,819 17,912 101,512 119,424
Finance costs (649) (2,593) (3,242) (909) (3,636) (4,545)
------------------------------------------ --------- ---------- --------- -------- -------- --------
Net return/(loss) on ordinary activities
before taxation 19,712 (13,135) 6,577 17,003 97,876 114,879
Taxation (2,462) - (2,462) (2,723) - (2,723)
------------------------------------------ --------- ---------- --------- -------- -------- --------
Net return/(loss) on ordinary activities
after taxation 17,250 (13,135) 4,115 14,280 97,876 112,156
------------------------------------------ --------- ---------- --------- -------- -------- --------
Return/(loss) per share (note 2) 7.71p (5.87)p 1.84p 5.93p 40.67p 46.60p
(1) Includes gains and losses on forward currency contracts
which are used to hedge the currency risk in respect of the geared
portion of the portfolio. Details of the Company's hedging strategy
are given in note 22(a)(i) in the 2018 Annual Report.
statement of changes in equity
for the year ended 31st December 2018
Called Capital
up
share Share redemption Capital Revenue
capital premium reserve reserves(1) reserve(1) Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ -------- -------- ----------- ------------ ----------- ----------
At 31st December 2016 14,082 151,850 8,151 788,019 23,114 985,216
Repurchase of shares
into Treasury - - - (104,877) - (104,877)
Net return on ordinary
activities - - - 97,876 14,280 112,156
Dividends paid in the
year (note 3) - - - - (12,065) (12,065)
------------------------ -------- -------- ----------- ------------ ----------- ----------
At 31st December 2017 14,082 151,850 8,151 781,018 25,329 980,430
Repurchase of shares
into Treasury - - - (52,507) - (52,507)
Net return on ordinary
activities - - - (13,135) 17,250 4,115
Dividends paid in the
year (note 3) - - - - (12,862) (12,862)
------------------------ -------- -------- ----------- ------------ ----------- ----------
At 31st December 2018 14,082 151,850 8,151 715,376 29,717 919,176
------------------------ -------- -------- ----------- ------------ ----------- ----------
(1) These reserves form the distributable reserves of the
Company and may be used to fund distributions to investors via
dividend payments.
statement of financial position
At 31st December 2018
2018 2017
GBP'000 GBP'000
----------------------------------------------- -------- ----------
Fixed assets
Investments held at fair value through profit
or loss 910,438 1,070,243
Current assets
Derivative financial assets - 1,359
Debtors 1,334 919
Cash and cash equivalents 7,919 13,689
------------------------------------------------ -------- ----------
9,253 15,967
Current liabilities
Creditors: amounts falling due within one
year (515) (87,299)
------------------------------------------------ -------- ----------
Net current assets/(liabilities) 8,738 (71,332)
------------------------------------------------ -------- ----------
Total assets less current liabilities 919,176 998,911
------------------------------------------------ -------- ----------
Creditors: amounts falling due after more
than one year - (18,481)
------------------------------------------------ -------- ----------
Net assets 919,176 980,430
------------------------------------------------ -------- ----------
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 715,376 781,018
Revenue reserve 29,717 25,329
------------------------------------------------ -------- ----------
Total shareholders' funds 919,176 980,430
------------------------------------------------ -------- ----------
Net asset value per share 420.7p 424.3p
statement of cash flows
for the year ended 31st December 2018
2018 2017
GBP'000 GBP'000
--------------------------------------------------- ---------- -----------
Net cash outflow from operations before dividends
and interest (2,158) (6,558)
Dividends received 18,160 16,829
Interest received 470 166
Overseas tax recovered/(charged) 347 (259)
Interest paid (3,479) (4,596)
---------------------------------------------------- ---------- -----------
Net cash inflow from operating activities 13,340 5,582
---------------------------------------------------- ---------- -----------
Purchases of investments (391,851) (437,710)
Sales of investments 546,604 533,956
Settlement of forward currency contracts 21 3,073
---------------------------------------------------- ---------- -----------
Net cash inflow from investing activities 154,774 99,319
---------------------------------------------------- ---------- -----------
Dividends paid (12,862) (12,065)
Repayment of bank loans (58,914) (3,858)
Draw down of bank loans - 19,474
Redemption of debenture (50,000) -
Repurchase of shares into Treasury (52,107) (104,877)
---------------------------------------------------- ---------- -----------
Net cash outflow from financing activities (173,883) (101,326)
---------------------------------------------------- ---------- -----------
(Decrease)/increase in cash and cash equivalents (5,769) 3,575
---------------------------------------------------- ---------- -----------
Cash and cash equivalents at the start of
the year 13,689 10,114
Unrealised loss on foreign currency (1) -
Cash and cash equivalents at the end of the
year 7,919 13,689
---------------------------------------------------- ---------- -----------
(Decrease)/increase in cash and cash equivalents (5,769) 3,575
---------------------------------------------------- ---------- -----------
Cash and cash equivalents consist of:
Cash and short term deposits 53 19
Cash held in JPMorgan US Dollar Liquidity
Fund 7,866 13,670
---------------------------------------------------- ---------- -----------
Total 7,919 13,689
---------------------------------------------------- ---------- -----------
Notes to the financial statements
for the year ended 31st December 2018
1. Accounting policies
Basis of accounting
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 November 2014 and updated in February
2018.
All of the Company's operations are of a continuing nature.
The financial statements have been prepared on a going concern
basis. The disclosures on going concern in the 2018 Annual Report
form part of these financial statements.
The policies applied in these financial statements are
consistent with those applied in the preceding year.
2. Return per share
2018 2017
GBP'000 GBP'000
-------------------------------------------- ------------ ------------
Revenue return 17,250 14,280
Capital (loss)/return (13,135) 97,876
-------------------------------------------- ------------ ------------
Total return 4,115 112,156
-------------------------------------------- ------------ ------------
Weighted average number of shares in issue
during the year 223,635,390 240,684,981
Revenue return per share 7.71p 5.93p
Capital (loss)/return per share (5.87)p 40.67p
-------------------------------------------- ------------ ------------
Total return per share 1.84p 46.60p
-------------------------------------------- ------------ ------------
3. Dividends paid and proposed
2018 2017
GBP'000 GBP'000
---------------------------------------------- -------- --------
Dividends paid
Unclaimed dividends refunded to the Company - (4)
2017 Final dividend of 3.25p (2016: 2.75p) 7,326 6,801
2018 Interim dividend of 2.50p (2017: 2.25p) 5,536 5,268
---------------------------------------------- -------- --------
Total dividends paid in the year 12,862 12,065
---------------------------------------------- -------- --------
Dividends proposed
2018 Final dividend of 4.0p (2017: 3.25p) 8,739 7,510
---------------------------------------------- -------- --------
All dividends paid and proposed in the period have been funded
from the Revenue Reserve.
The dividend proposed in respect of the year ended 31st December
2017 amounted to GBP7,510,000. However the amount paid amounted to
GBP7,326,000 due to shares repurchased after the balance sheet date
but prior to the share register record date.
The dividend proposed in respect of the year ended 31st December
2018 is subject to shareholder approval at the forthcoming Annual
General Meeting. In accordance with the accounting policy of the
Company, this dividend will be reflected in the financial
statements for the year ending 31st December 2019.
4. Net asset value per share
2018 2017
--------------------------- ------------ ------------
Net assets (GBP'000) 919,176 980,430
Number of shares in issue 218,480,648 231,085,811
--------------------------- ------------ ------------
Net asset value per share 420.7p 424.3p
--------------------------- ------------ ------------
Status of results announcement
2017 Financial Information
The figures and financial information for 2016 are extracted
from the Annual Report and Accounts for the year ended 31st
December 2017 and do not constitute the statutory accounts for the
year. The Annual Report and Accounts 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 Accounts will be
delivered to the Register of Companies in due course.
2018 Financial Information
The figures and financial information for 2018 are extracted
from the published Annual Report and Accounts for the year ended
31st December 2018 and do not constitute the statutory accounts for
that year. The Annual Report and Accounts has 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.
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.
22nd March 2018
For further information:
Alison Vincent,
JPMorgan Funds Limited 020 7742 4000
ENDS
A copy of the annual report will shortly be submitted to the
National Storage Mechanism and will be available for inspection at
www.morningstar.co.uk/uk/NSM
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.
JPMORGAN FUNDS LIMITED
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR SEWSAEFUSEID
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