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Top Rated Trust for US Equity Bulls

Feeling bullish about the outcome of the upcoming US election? We highlight one Bronze Rated investment trust which has outperformed the notoriously tough index

David Holder 30 September, 2016 | 10:07AM

JPMorgan American (JAM) is a sound choice for core US equity exposure. Fund manager Garrett Fish has been in charge here since November 2002 and has more than 25 years of investment experience. Fish draws upon the extensive wider fund manager and analyst resource available to him at J.P. Morgan. The fund has an allocation to smaller companies that varies between 0% and 11%.

A good return for an active investor against what is a very demanding index to outperform

Lately this has been around 4% and is outsourced to J.P. Morgan veteran Eytan Shapiro, who has been responsible for the small caps in this fund since July 2005, though his expertise in small-cap growth investing extends back to 1992.

Fish uses both fundamental analysis from the US equity team and outputs from the behavioural finance unit when picking stocks for his portfolios. For this fund, Fish looks for high-quality growth stocks and focusses heavily on cash flow and its deployment when assessing a company. From a behavioural standpoint, the team screens on earnings and price momentum, among other factors.

The results are brought together with a sanity check by the analysts and all stocks are given a ranking. Fish then uses these rankings to construct his portfolio, as well as to provide a sell signal for stocks whose ranks are deteriorating.

From November 2002 to the end of February 2016, Fish has produced gains that exceed the fund’s US large-cap blend equity Morningstar Category by an annualised 146 basis points and the S&P 500 by a more modest five basis points. This represents a good return for an active investor against what is a very demanding index to outperform.

One area of evolution in the process concerns the asset-allocation model that has historically driven gearing decisions. This model looks at the attractiveness of equities relative to bonds but since the financial crisis in 2008, it hasn’t been effective and signals have been confused. Fish and the board have collectively agreed to override this model for the time being, until normality returns in its output.

The approach with regard to gearing is to maintain it around the 10% level, with minor positioning around this taken at the discretion of the manager. Should Fish feel very strongly about market levels he and the board have flexibility to hold modest levels of cash or gear up to 20% of net assets. When the debenture redeems in 2018 it will remove a material headwind for the fund.

We feel comfortable in Fish’s long-proven ability to harness the output of the quantitative model at J.P. Morgan blended with the behavioural finance team to construct a high quality but value-conscious portfolio of predominately US large cap stocks. The fund has demonstrated consistent yet meaningful outperformance of peers and retains its Morningstar Analyst Rating of Bronze.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
JPMorgan American Ord473.61 GBX-0.08

About Author

David Holder  is a senior investment research analyst at Morningstar

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