JPMorgan UK Small Cap Growth & Income

(JUGI) 293.5p

Market cap: £403.4 million

A major trend in the investment trust sector is mergers between sub-scale trusts with similar remits to create funds large enough and sufficiently liquid to attract wealth managers and retail investors.

One example which Shares believes offers a compelling proposition is JPMorgan UK Small Cap Growth & Income (JUGI), which is the resut of the combination of JPMorgan UK Smaller Companies and stablemate JPMorgan Mid Cap, which shared the same managers and had plenty of portfolio overlap.

With assets now knocking on £500 million, the enlarged entity is more liquid, has lower fees spread across a broader asset base and a wider investment universe. Furthermore, the name change reflects a new enhanced dividend policy targeting a 4% yield on NAV (net asset value) to be paid from a combination of income and capital.

Trading at an attractive 12.5% discount to NAV, the trust offers a stronger total return with income alongside the capital growth potential of the small-cap asset class where valuations remain attractive in absolute and relative terms as shown by surge in M&A activity.

Managers Georgina Brittain and Katen Patel are bottom-up stock pickers with an excellent performance track record who look to capitalise on the lack of research at the smaller end of the UK market to find highly innovative or disruptive firms. Able to leverage JPMorgan’s deep research capability, their approach aims to identify companies which can grow rapidly and become tomorrow’s medium- and large-caps.

The trust’s greater scale gives Brittain and Patel the freedom to invest across an enlarged universe including FTSE 250 constituents and smaller AIM-traded companies. At last count, the portfolio was heavily overweight consumer discretionary versus its benchmark, meaning the trust offers a play on the uptick in domestic consumer confidence with unemployment low and real wages rising.

Select FTSE 250 names such as housebuilder Bellway (BWY) and central London REIT Shaftesbury Capital (SHC) have been rolled into the new-look JPMorgan Small Cap Growth & Income, whose eclectic mix of growth stocks includes promotional products marketer 4imprint (FOUR), airline-to-package holidays provider Jet2 (JET2:AIM), cakes-to-cooking sauces maker Premier Foods (PFD), software firm Bytes Technology (BYIT) and online ticketing platform Trainline (TRN).

Previously, JPMorgan charged 0.65% on net assets up to £300 million and then 0.55% on assets above that amount. For the enlarged trust, the threshold has been lowered to £200 million. 

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