With the UK general election now done and dusted, a new prime minister in 10 Downing Street with a chunky mandate in the House of Commons promising stability and change growth, could economic uncertainty in the UK be a receding threat? Take a look at our analysis of Labour’s election victory and its vital first-100 days in office.
In the immediate wake of last week’s election victory, UK stock markets strengthened a little as did sterling, so might now be the time to revisit the UK’s stockmarkets – especially given that political turmoil may well roll-on in North America and Europe?
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One of the best barometers of the UK economy is the AIM market, as unlike the FTSE100 or even the FTSE250, which are dominated by corporates that have an international outlook and derive a good chunk of their revenue from Rest of the World ex-UK, AIM, by contrast has a lot more companies that are growing on the back of domestic demand and often reflect growth sectors such as AI, biotechnology and green energy.
The GBP541m JPMorgan UK Small Cap Growth & Income Trust [LON:JUGI], is a good vehicle to access smaller companies in the UK and offers both growth and income to investors. The JPM is the top performer over one-year in the Association of Investment Companies’ (AIC) UK Smaller Companies sector with a +37.8% return (on a share price total return) against a sector average of +24.6%.
Over longer time periods, the JPMorgan fund also performed strongly. Over five years, the fund was second in the sector, returning +77.6% against a sector average of +31.1% (although the top performer in sector Rockwood Strategic Fund [LON:RKW] merits a mention in dispatches as it smashed the ball out of the park over five years with a +202% return).
Over ten-years the JPM fund was top three with a +196.8% return, against a sector average of +109.6%. JPMorgan was pushed down into the bronze medal position by Oryx International Growth [LON:OIG], which beat JPM by 40 percentage points and Rockwood, which outperformed JPM by 29 percentage points.
Flag-waver for Britain
The fund, which has been around for 34-years’ objective is to achieve capital growth from UK listed smaller companies and a rising share price over the longer term by taking carefully controlled risks. Managed by Georgina Brittain, a JPM lifer who has been with the bank for 29-years and with the fund for 26 of those, and Katen Patel, who has been with JPM for 11-years after working with HSBC in equity sales, and has been assistant manager of the fund for nine years.
Brittain is a paramount flag-waver for Great Britain, and oversaw the merger of the JPM UK Smaller Companies Investment Trust and the JPM Mid Cap Investment Trust earlier this year, and the change in the company promises greater dividend potential for income investors, but still with a growth kicker. She argues that although the UK Smaller Companies market has struggled and not had much love of late, with shrewd stock-picking there are companies within the universe that can produce outstanding returns.
As the embers of growth appear in the UK, with a fall in inflation (hopefully foreshadowing a fall in interest rates) and real and nominal incomes growing (albeit insipidly), good times might well return to the UK economy, with small companies leading the charge.
Good value at current prices
Brittain believes that smaller companies are good value at present prices, with many of them building up free cash flow yields, which will allow them to reduce debt, pay dividends and finance investment in their own R&D. The fund has the mandate to gear up its portfolio, between 10% and 15% of net cash and pledges to pay at least 4% of NAV as dividends. The fund has 9% gearing currently.
Top five holdings as at 31st May 2024
| Investment | Sector | Weighting |
| Ashtead Technology LON:AT. | Energy | 4.5% |
| Premier Foods LON:PFD | Consumer Staples | 3.8% |
| 4Imprint LON:FOUR | Consumer Discretionary | 3.8% |
| Warpaint LON:W7L | Consumer Discretionary | 3.2% |
| Jet2 LON:JET2 | Consumer Discretionary | 3.0% |
Source: J.P. Morgan Asset Management
The fund trades at a -2.62% discount to premium, and has a dividend yield of 2.92%, which is below the sector average of 3.24%. It has an ongoing charge of 1.02%.
With a strong track record and a focus on undervalued smaller companies, the JPMorgan UK Small Cap Growth & Income Trust offers a compelling option for investors seeking exposure to a potentially resurgent UK economy. Under the experienced leadership of Georgina Brittain, the trust’s focus on both growth and income, along with its ability to use gearing strategically, positions it well to capitalize on a potential upswing in the domestic market. As the UK navigates a new political landscape, the JPMorgan trust offers a chance to invest in the future of smaller British businesses.
