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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Jpmorgan American Investment Trust Plc | LSE:JAM | London | Ordinary Share | GB00BKZGVH64 | ORD 5P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| -11.00 | -1.13% | 959.00 | 957.00 | 960.00 | 972.00 | 956.00 | 972.00 | 193,983 | 11:52:26 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Trust,ex Ed,religious,charty | 329.1M | 318.32M | 1.6967 | 5.65 | 1.8B |
From Apr 2019 to Apr 2024
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:
Hot Features
Premium
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
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