March 2024Financial highlights for the Reporting Period include:
· JAM generated a NAV total return, with debt at fair, of +24.7% in 2023 compared with +18.9% for its benchmark, the S&P 500 Index, while its share price total return was +26.6%.
· Since the change in investment approach on 1st June 2019 to the end of February 2024, JAM has generated a NAV total return of +116.3% compared with +97.3% for its benchmark. This represents an annualised outperformance of 2.2 percentage points.
· JAM's discount narrowed from 1.7% to 0.3% in the year and it has subsequently traded at premium allowing the re-issuance of shares from treasury.
· At the end of 2023, 91.5% of JAM's assets were invested in US large cap stocks, through a high conviction portfolio of 40 stocks. This represented a carefully curated selection of the Manager's best growth and value investment ideas. The small cap portfolio represented 6.5% of assets, with the balance in liquidity funds.
· The Ongoing Charges Ratio for 2023 was 0.38% and JAM remains one of the most competitively priced US actively managed funds available to UK investors, in either closed-ended or open-ended form.
· Subject to shareholder approval at the AGM, a final dividend of 5.25p will be paid on 31st May 2024, making a total dividend of 7.75p per share for the 2023 Financial Year. This represents an increase of 6.9% on the previous year's total dividend.Dividends
Whilst capital growth is the primary aim of the Company, the Board understands that dividend receipts can be an important element of shareholder returns. As such the Board has sought to enhance shareholder returns with a progressive dividend policy.
The Company paid an interim dividend in respect of the 2023 financial year (FY23) of 2.5p on 6th October 2023 (unchanged from the interim dividend paid in FY22). Subject to shareholder approval at the AGM, a final dividend of 5.25p will be paid on 31st May 2024 to shareholders on the register on 21st April 2024, making a total dividend of 7.75p per share for FY23. The Board is happy to report that this represents an increase of 6.9% on last year's total dividend of 7.25p per share.
After the payment of the proposed final dividend, the balance in the revenue reserves will be £22.0 million, equivalent to 12.0p per share (2022: 11.5p per share) or 1.6 times (2022: 1.6 times) the current dividend. The prudent approach of building up revenue reserves in prior years provides the Board with a means of supporting current and future dividend levels, should earnings per share drop materially in any financial year.
The Board continues to monitor the net income position of the Company and, based on current estimated dividend receipts for the year ahead, the Board aims to continue its progressive dividend policy in the forthcoming year.
INVESTMENT MANAGER'S REPORT
Market Review
The year just past was a strong one for most equity markets, with the S&P 500 Index boasting a double-digit return of +26.2% in US dollars, and +19.2% in sterling. Despite a period of turbulence in February and March 2023, when a large west coast regional bank fell victim to the US Federal Reserve's (Fed) aggressive tightening cycle, raising fears of much broader financial sector instability, the market resumed its recovery from its 2022's lows. Declining inflation and the promise of lower interest rates were the primary market drivers, further supported by the new secular growth opportunity created by the arrival of accessible generative artificial intelligence (Gen AI) tools. The index performance was heavily dominated by the 'Magnificent 7' - Apple, Microsoft, Amazon, Alphabet, NVIDIA, Meta Platforms and Tesla - whose combined weight now comprises 28% of the S&P 500; these contributed a striking 83% of the index's performance for the year.
The US economy proved to be more resilient in the face of aggressive monetary tightening than many expected, as the much-anticipated full-scale US recession has yet to materialise. But, as in the late 1980s, the economy did experience rolling recessions across a range of industries, most notably housing, and a very significant and widespread inventory correction, as supply chains normalised following their pandemic-induced disruptions. The Fed's work on inflation seems to be done, as the CPI has retreated from a peak of 9.1% in June 2022 to 3.4% in December 2023, with further reductions in the pipeline and numerous deflationary influences emerging.
US corporate earnings have also been stronger than expected. Earnings forecasts for 2023 increased steadily over the course of the year as recession fears and elevated costs subsided. Technology spending has begun to reaccelerate after a period of optimisation and digestion, while significant government spending programs around clean energy and reshoring of strategic manufacturing have supported very strong capital spending by businesses.
The sharp rise in interest rates by the Fed created considerable challenges that were felt most acutely in parts of the regional banking sector, precipitating the dramatic failure of three banks - Silicon Valley Bank, First Republic and Signature Bank - in the early part of the year. Monetary tightening phases such as this one have a history of triggering high profile failures, from Long Term Capital Management in 1998, to Lehman Brothers, Bear Stearns and Washington Mutual in 2008. Interest rate pressure on regional banks, and banks in general, directly impacts their willingness to lend. Not surprisingly, bank lending surveys highlight that corporate lending standards have tightened meaningfully, and that lending by small banks, particularly lending for commercial real estate, is very constrained. Private credit funds have partially stepped in to fill that vacuum, but more for commercial and industrial business loans.
As mentioned previously, the stock market rebound was fuelled significantly by the 'Magnificent 7', whose average return for the year was 76%, nearly three times the return for the S&P 500. This resurgence in the mega cap tech stocks was partly triggered by the launch of ChatGPT, which showcased recent breakthroughs in generative AI. For the first time, individuals have direct access to the underlying large language model that can answer complex questions and solve problems. Companies across almost all industries have begun to invest in AI; there appears to be considerable risk in not doing so. The competitive disruption and the potentially favourable impact on productivity that AI will herald are very hard to estimate but could be quite substantial. Timing is also hard to assess.
It is no surprise given the dominance of AI that the best performing sectors for the S&P 500 in 2023 have been tech-driven, with information technology, communication services and consumer discretionary stocks all up more than 40%. Energy, which was the best performing sector in 2022, was one of the worst performers over the past year, registering a 1.3% decline due to the drop in oil prices and fears of an economic slowdown. Defensive stocks did not fare well either, with utilities suffering a 7% decline. Despite the turmoil in the banking sector, financials finished the period up 13%.
Large cap stocks, as represented by the S&P 500 Index, outperformed the small cap Russell 2000 Index, returning +26.1% compared to the 16.9% rise in small caps. In a reversal of 2022's outcome, Value names lagged Growth by a wide margin, as the Russell 3000 Value Index returned +11.7% while the Russell 3000 Growth Index returned +41.2%.
https://www.investegate.co.uk/announcem ... rt/8108579
Disc: I hold this for US growth exposure.