• As an important component of both the global economy and equity market, US equities should be a staple feature of every investor’s portfolio.
• The JPMorgan America Equity Fund offers investors the best of both worlds by combining the most compelling investment ideas from their value and growth teams in a single portfolio.
• The fund aims to deliver long-term capital appreciation by investing in a concentrated portfolio of 20-40 stocks curated using quantitative metrics and extensive bottom-up fundamental research.
• The fund’s strong emphasis on quality stocks has resulted in solid performance and favourable risk metrics, outshining its peers.
For several decades, the US has consistently held the position of the largest economy in the world. While there have been several predictions that China will one day dethrone the US, the likelihood of this becoming a reality has diminished as China’s economy continues to face a myriad of challenges, including growing geopolitical/trade tensions, slowing economic growth and a property crisis.
Meanwhile, the US economy continues to power on, demonstrating its resilience even in an environment of elevated inflation and interest rates. According to the latest data, the economy expanded by 1.4% in the first quarter of 2024, and is projected to deliver growth of 2.3% for the full year.
Besides the economy, US equities have also done well. Year-to-date, the S&P 500 index is up by more than 16%, which puts the US among the best performing markets – far outpacing other major economies such as China and even Japan, which has staged a strong recovery this year.
Figure 1: The US is among the top performing equity markets this year
Going forward, we remain optimistic that the US economy and stock market will continue to do well. The country’s rich and well-developed capital markets, along with its pro-business environment makes it one of the top destinations for both foreign and domestic firms to invest in, which can help to ensure that the US stays ahead of its competitors in terms of innovation.
The US is also home to a large number of high-quality companies that hold dominant positions across several sectors. For instance, most of the leading chipmakers in the world such as the likes of NVIDIA and Intel are US companies, while close to 70% of the cloud computing market is controlled by just three companies - Amazon, Microsoft, and Alphabet.
Many of these companies possess sustainable competitive advantages while maintaining a strong international presence, making them one of the few truly global business models that exist in the world. Qualities like these should help to ensure that their future remains promising.
As an important component of both the global economy and equity market, US equities should be a staple feature of every investor’s portfolio. To that end, we would like to introduce the JPMorgan Funds - America Equity A (acc) USD, one of our new minted recommended funds for exposure to US equities.
Related Article: Why the US equity market deserves to be trading at a higher earnings multiple
The JPMorgan America Equity Fund offers the best of both worlds
Value and growth are the two most commonly used investing styles in the world.
The JPMorgan America Equity Fund offers investors the best of both worlds by combining the most compelling investment ideas from their value and growth teams in a single portfolio. The fund is one of JPMorgan’s oldest, having been launched in 1988. Its objective is to deliver long-term capital appreciation by investing in a concentrated portfolio of US equities that can outperform in various market cycles. The fund is benchmarked against the S&P 500 Index (Total Return Net of 30% withholding tax).
The fund’s investment philosophy is based on the belief that sharper focus through a concentrated portfolio, and deeper insights achieved from bottom-up fundamental research should lead to better results over time. By incorporating elements of both value and growth investing, the fund’s opportunity set is also broader, thus allowing for a unique portfolio of stocks.
Idea generation for both the value and growth sleeves is multi-faceted activity, with the portfolio managers relying on a wide range of sources. At the beginning, the investment universe is narrowed down using quantitative metrics. As a rule of thumb, stocks with a market cap of less than USD 1 billion and a PE ratio of more than 20X are excluded for the value sleeve. As for the growth sleeve, the initial screening process incorporates metrics such as earnings revisions, share price momentum as well as valuation metrics (e.g. price to earnings & price to free cash flow ratios).
The remaining companies are whittled down further using other sources of information, such as those derived from meetings with company management, inputs from industry experts and by leveraging on the insights of the broader JP Morgan organisation. The investment team then performs extensive fundamental research on the companies that meet their criteria. There is also a heavy emphasis on quality, where the team seeks to identify high quality businesses with durable competitive advantages – which they believe will provide stability should economic fundamentals deteriorate.
The result of this process is a concentrated portfolio of 20-40 stocks that represent the portfolio manager’s highest conviction ideas. As of 30 June 2024, the fund holds a total of 40 stocks, with the top 10 making up nearly 40% of the portfolio. Several big tech companies are featured among its largest holdings, such as the likes of Microsoft, NVIDIA and Apple (Table 1).
Table 1: Top 10 holdings of the JP Morgan America Equity Fund
|
Company |
Sector |
Weight |
|
Microsoft |
Technology |
7.8% |
|
Nvidia |
Technology |
6.9% |
|
Amazon |
Consumer Discretionary |
5.9% |
|
Meta |
Communication Services |
4.9% |
|
Apple |
Technology |
2.9% |
|
EOG Resources |
Energy |
2.9% |
|
Regeneron |
Healthcare |
2.8% |
|
Berkshire Hathaway |
Financials |
2.8% |
|
Broadcom |
Technology |
2.8% |
|
Kinder Morgan |
Energy |
2.8% |
|
Total |
|
39.7% |
|
Source: JP Morgan, iFAST Compilations Data as of 30 June 2024 |
||
Despite a sizeable allocation to its largest holdings, the fund is still relatively well diversified. In totality, its holdings are spread across all 11 sectors with technology and financials forming the two largest sectors at 28% and 17% respectively.
The portfolio managers have expressed an optimistic view on the technology sector, as they believe secular forces such as innovation and disruption are in full swing, increasing the rate of technological advancement and thus giving rise to new opportunities within this space. They are also positive on the consumer sector, with the expectation that greater consumer spending will continue to drive the economic recovery.
Solid long-term performance track record and risk management
One of the reasons we like this fund is because of its solid long-term performance track record. On a calendar year basis, the JPMorgan America Equity Fund has consistently outperformed its peers (Figure 2). On average, the fund has delivered returns of 16.6% in the past five calendar years, similar to the benchmark S&P 500 Index and higher than the peer average of 13.3% (all returns are in SGD terms, unless otherwise stated). The fund has also done well on an annualised basis, where it managed delivered returns of 9.1% and 14.2% over the past three and five years, roughly in line with its benchmark.
Figure 2: The JPM America Equity Fund has posted strong returns over the years
The fund has also scored well in terms of risk management, sporting a maximum drawdown of just -34.5% over a five-year period, versus the peer average of -36.2% and the S&P 500 Index’s -33.9% (Figure 3). This is likely attributable to the fund’s strong emphasis on selecting quality stocks, along with its robust risk controls.
The investment team takes a holistic approach when it comes to risk management, which includes daily monitoring and a formal discussion on a bi-weekly basis. The primary purpose of these bi-weekly meetings is to ensure the portfolio is not making overlapping or unintended bets through its two distinct styles. The fund also employs strict sell discipline, where positions are reduced or eliminated when (i) better opportunities are identified, (ii) there is a significant change in the underlying fundamental thesis, (iii) share price exceeds reasonable expectations.
Figure 3: Relatively smaller drawdown vs its peers suggest better risk management
Final thoughts
In a nutshell, we like the JPMorgan America Equity Fund for its unique strategy that incorporates the best ideas from their most experienced value and growth portfolio managers. The fund’s long-term investment horizon and focus on selecting high quality stocks makes it an attractive proposition for investors seeking stability and growth in this uncertain environment. And with a track record of more than 35 years of delivering stellar returns, the JPMorgan America Equity Fund is one to consider for your portfolio.
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