JPMorganUS Small Cos - Final Results
28/03/2025 07:00
RNS Number : 5862C
JPMorgan US Smaller Co. IT
28 March 2025
LONDON STOCK EXCHANGE ANNOUNCEMENT
JPMORGAN US SMALLER COMPANIES INVESTMENT TRUST PLC
FINAL RESULTS FOR THE YEAR ENDED 31ST DECEMBER 2024
Legal Entity Identifier: 549300MDD7SOXDMBN667
Information disclosed in accordance with the DTR 4.1.3
Highlights:
· Investment Performance: The Company's total return on net assets for the year ended 31st December 2024 was +11.3%, underperforming its benchmark, the Russell 2000 Index in sterling terms, which returned +13.3%. Despite this, the Company achieved a total return to shareholders of +18.7%, indicating a narrowing of the discount at which the Company's shares traded over the year.
· Dividend: The Company declared a dividend in respect of the year ended 31st December 2024 totalling 3.1 pence per share, subject to approval by shareholders at the 2025 Annual General Meeting. This amount is driven by the naturally occurring income on the underlying portfolio.
· Gearing and Loan Facility: The Company maintained a gearing level of 7.7% as of 31st December 2024. The Company had drawn down US$30 million (£24.0 million) on its borrowing facility, reflecting the Board's policy to utilise liquidity and borrowings to remain invested within a maximum gearing limit of 15%.
· Share Repurchases: During the year, the Company repurchased 3,047,895 shares into Treasury, equivalent to 4.66% of the shares in issue, at an average discount of 11.5%. This was part of the Company's active share buyback program aimed at enhancing shareholder value and managing the discount to net asset value.
Dominic Neary, Chair of JUSC, commented:
"The Board believes strongly in the case for long-term investment in US smaller companies through an investment trust. US small cap investments are a highly appealing proposition, offering access to a large and diverse opportunity set of exciting and entrepreneurial companies geared to the US economy."
"We are confident that the investment team continues to focus their investment decisions on valuation-conscious, all-weather stocks that will be robust in the face of political and economic developments. With the relative valuation of small cap investments so attractive, and the US small cap bias towards the home market, we believe that as the domestic-growth oriented policies are implemented those that Invest in the Heart of America through your Company will benefit from strong investment returns over time."
Don San Jose, Jon Brachle and Dan Percella, Portfolio Managers of JUSC, commented:
"As we enter 2025, we remain constructive on the investment case for small caps. Valuations are compelling and we see potential for a broadening of returns beyond a handful of US mega-caps, to the market at large, including smaller cap companies. Indeed, the valuation discount of small caps relative to large caps is reminiscent of levels seen during the Tech, Media and Telecom bubble of the late 1990s and early 2000s."
We intend to maintain our search for innovative, high-quality, smaller cap companies with attractive investment cases, and we will continue to use any bouts of market volatility to act on compelling stock selection opportunities, with a view to building on the Company's long-term track record of strong capital growth and outperformance."
CHAIR'S STATEMENT
I have great pleasure in presenting the Annual Report of JPMorgan US Smaller Companies Investment Trust plc ('the Company') for the year ended 31st December 2024. The year was notable in many ways: continued strong performance from US equity markets, fuelled primarily by a handful of large capitalisation technology stocks; the US Presidential election seeing Donald Trump secure a second term in the White House; and, closer to home, a sustained period of significantly widened discounts leading to record levels of investment trust M&A activity alongside the arrival of vocal activist investors on share registers across the sector.
Performance
US equity markets began 2024 on a strong note, fuelled by optimism surrounding a 'soft landing' for the economy. Positive economic news, strong consumption, solid corporate earnings and Federal Reserve interest rate cuts provided further support to stock market performance. Latterly, the 2024 US elections had a significant impact on the markets on the expectation of tax cuts and pro-growth policies with particular support for domestically-oriented businesses. The initial euphoria rapidly faded as initial policy targets of tariffs, tougher action in immigration and a shift in US foreign policy were seen as less growth-positive and introduced significant uncertainties.
Against this backdrop, the Company's total return on net assets over the year was +11.3% which is modestly behind the +13.3% return for the benchmark, the Russell 2000 index in sterling terms. Total return to shareholders was +18.7% for the year, with the discount at which the Company's shares traded over the 12 month period narrowing.
While the Company's absolute total return performance was strong, the performance relative to the benchmark over the short term is disappointing. The investment team focuses on investment in more profitable, higher-quality and less volatile small cap businesses which, while defensive in weaker markets, can lag in markets that exhibit a preference for lower-quality growth stocks. Importantly, the longer-term track record of benchmark outperformance remains intact. This reflects the Manager's disciplined focus on investment in high-quality, investment opportunities at attractive valuations.
Full details of investment performance, changes to the portfolio and the outlook can be found in the Investment Manager's Report in the Annual Report and Financial Statements.
Discount Management, Share Issuance and Buybacks
As I noted in our 2024 Interim Report, there has been a growing presence of activist investors on share registers across the sector. For example, US firm SABA Capital Management recently requisitioned meetings at seven trusts in which it had accumulated significant shareholdings; ostensibly to realise the value locked inside persistent share price discounts to net asset value (NAV), but the underlying rationale was widely perceived to be a self-interested attempt to gather assets in a way that failed to protect shareholder interests. The boards and managers of the trusts involved overcame the long standing challenges of communicating with individual shareholders to ensure that they were made aware of the implications of the proposals and encouraged to vote. In each case the resolutions were voted down on strong turnout. While these actions have shaken the sector, there are certainly significant positives to emerge. For example, the rejection of the proposals indicates that shareholders value the unique attributes of investment trusts - most notably an independent board representing the rights of all shareholders. It has reminded all boards that persistent discounts must be proactively addressed. Finally, it has provoked stronger engagement with government and regulators to improve boards' abilities to engage directly with shareholders. This must include individuals who hold their shares through platforms.
I would like to reassure shareholders that the Board continues to take a proactive rather than reactive approach to such issues, as we always have done, to protect and grow your interests as shareholders.
On a day-to-day basis this aim is best served by transacting in the Company's shares when appropriate, aiming to minimise the discrepancy between the share price and the net asset value. Our ability to do so depends on prevailing market conditions and the behaviour and risk appetite of investors. Additional challenges include US smaller companies' share price volatility and owning dollar-denominated assets whilst reporting in sterling. We only transact in the Company's shares when it will enhance shareholder value - buying back stock at a discount to NAV to remove excess supply of the Company's shares from the market, and issuing at a share price above NAV to avoid the formation of an excessive premium.
With the shares trading at a discount throughout 2024 our primary focus was on stimulating demand for the Company's shares. To this end, we have two key levers at our disposal: an active, value-enhancing share buyback programme, and effective ongoing marketing activities. We have continued to be busy on both fronts.
During the year to 31st December 2024, the Company bought back 3,047,895 shares into Treasury, at an average price of 399.0p and a total cost of £12.2 million, in periods when discounts were particularly wide, reflected in the weighted average discount of 11.5% at which these shares were acquired. Since the year end, the Company has repurchased an additional 369,510 shares into Treasury. The Company did not issue any shares during the year or since the year-end.
On marketing activities, we continue to improve the promotion of the Company to shareholders and the broader market. For example, the Board has recently engaged an adviser to support the Manager in promoting the attractive characteristics of the Company. Their primary focus is to maximise the impact of the compelling content generated by the investment team under the evergreen tagline 'Invest in the Heart of America.' To improve access to this content the Company's website has been upgraded and we would strongly recommend it as the primary source of information on the Company. The Board continues to work actively on improving the Company's shareholder communications and PR programme.
I am pleased to report that these actions, alongside the emerging recognition of the appeal of attractively-valued, domestically-oriented, high-quality US small cap stocks in a falling rate environment, mean that the Company's discount, which averaged 8.9% over the course of the year, ending the year at a narrower discount of 1.8% (2023: 7.9%), although it has since widened to 6.5% as I write.
Continuation of the Company
In accordance with the Company's Articles of Association, an ordinary resolution will be put to shareholders at the forthcoming AGM that the Company continues in existence as an investment trust for a further five-year period.
The Board believes strongly in the case for long-term investment in US smaller companies through an investment trust. US small cap investments are a highly appealing proposition, offering access to a large and diverse opportunity set of exciting and entrepreneurial companies geared to the US economy. Further, current valuations lead us to expect strong performance from small caps over the next few years. The Company provides access to this attractive sector that individual investors and many institutions would find difficult to replicate. The investment trust structure is highly appropriate for investment in this sector, offering stable capital for investment in a less liquid sector, alongside the ability to borrow to enhance investment returns. Finally, the US small cap investment team at JP Morgan have a proven long-term track record of managing the Company through the consistent application of their proven philosophy and process. Over the 10 years to 31st December 2024, the total return from the Company's net assets was +187.1%, significantly outperforming its benchmark which returned +158.9% over the same period.
During the last 12 months, the Board, via the Management Engagement Committee, has undertaken a detailed review of the Manager and its investment approach. While acknowledging that relative performance over shorter term periods has been disappointing, the Board believes that the Manager's approach continues to be appropriate for the Company and that JPMorgan Asset Management has the appropriate resources to continue to manage the Company successfully. Additionally, the Company's major shareholders have been consulted where practicable, with feedback from this process indicating strong support for the continuation resolution.
Accordingly, the Board believes that the continuation of the Company is in the best interests of all shareholders and strongly recommends that shareholders vote in favour of the resolution at the AGM in June 2025, as the Directors intend to do in respect of their own holdings.
Revenue and Dividend
The Board is delighted to recommend a dividend of 3.1p in respect of the financial year ended 31st December 2024 (2023: 3.0p). Subject to shareholders' approval at the Annual General Meeting (AGM), this dividend will be paid on 11th July 2025 to shareholders on the register at the close of business on 13th June 2025. The ex dividend date is 12th June 2025.
The Company's objective is unchanged and remains one of capital growth. The dividend distribution amount will normally be driven by the minimum dividend required to maintain the Company's investment trust status. Therefore, the dividend level may fluctuate as the distributions typically reflect the naturally occurring income on the underlying portfolio.
Gearing
Our policy sees gearing levels adjusted to reflect changes in the Board's expectations for longer-term opportunities and market risks (with input from the Manager), rather than being used as a short-term market-timing tool.
At the beginning of the year the Company had a US$30 million (with an option to draw a further US$10 million) revolving credit facility with Scotiabank to maintain a meaningful but modest level of gearing. On 15th March 2024 the Board renewed the facility with Scotiabank, the new facility being a secured 364-day facility for a reduced amount of US$20 million. In November 2024 the Board elected to utilise the full accordion US$10 million facility noting the attraction of small cap valuations relative to large caps. The Board renewed the loan facility in March 2025 with a new loan provider, Bank of America. This is now for US$35 million (with a US$5 million accordion option) and is a 360 day evergreen facility.
As at 31st December 2024, the Company had drawn down US$30 million (GBP 24.0 million). It closed the year with a gearing level of 7.7%. The Board believes that the use of gearing is a key advantage of the investment trust structure and has consistently used gearing over time within its permitted 5% cash to 15% geared range.
Board and Succession Planning
In January 2025 the Board, through its Nomination Committee, carried out a comprehensive evaluation of the Board, its Committees, the individual Directors and the Chair. Topics discussed included the size and composition of the Board, Board information and processes, shareholder engagement, and training and accountability. The resulting report demonstrated the Board is working effectively for shareholders and in line with expectations. It was agreed that all the Directors will offer themselves for re-appointment at the forthcoming AGM and I very much hope you will vote for their re-appointment.
The Board has set in place detailed succession plans. These are particularly important for a board of four directors to ensure no discontinuity is caused by the retirement of non-executive directors after nine years' service, according to our policy, and as recommended by the AIC Code of Corporate Governance. Shefaly Yogendra will retire from the Board at the AGM in 2026. We are in the process of appointing an external adviser to assist in recruiting a new Director, with the intention to complete the process in the latter half of 2025.
Board Diversity
The Board recognises the value and importance of diversity in the boardroom. I am pleased to report that the Board meets the FCA Listing Rules targets on gender diversity criteria, female representation in a senior role and ethnic representation on the Board.
Review of services provided by the Manager
During the year, the Board, through its Management Engagement Committee, carried out a thorough review of the investment management, secretarial and marketing services provided to the Company by the Manager. Following this review, the Board has concluded that the continued appointment of the Manager on the terms agreed is in the interests of the shareholders.
The Company's ongoing charges for the financial year as a percentage of the average of the daily net assets during the year, which include the management fee1, gearing costs and other expenses, were 0.92% (2023: 0.93%).
1 70 basis points per annum on gross assets (excluding any holding in the JPM liquidity fund).
Environment, Social and Governance (ESG) considerations
The Board continues to engage with the Manager on the integration of ESG factors into its investment process. The Board is satisfied that the Manager has a robust and well-resourced approach, and that ESG factors are considered by the Portfolio Managers throughout the investment process.
The Board shares the Manager's view of the importance of financially material ESG factors when making investments for the long term and, in particular, the necessity of continued engagement throughout the duration of investment. The Portfolio Managers' ESG report describes the developments in the ESG process that have taken place during the year together with practical examples of how these are implemented.
Annual General Meeting
We are inviting shareholders to join us in person for the Company's sixty-eighth AGM to be held on Tuesday 17th June 2025 at 2.30 p.m. at 60 Victoria Embankment, London EC4Y 0JP. The Board hopes to welcome as many shareholders as possible.
As with previous years, you will have the opportunity to hear from the Portfolio Managers. Their presentation will be followed by a question and answer session. There will be refreshments afterwards when shareholders will be able to meet members of the Board. Shareholders wishing to follow the AGM proceedings but choosing not to attend in person will be able to do so online, and will be able to ask questions through conferencing software. Details on how to register together with access details can be found on the Company's website: www.jpmussmallercompanies.co.uk, or by contacting the Company Secretary at jpmam.investment.trusts@jpmorgan.com.
In accordance with normal practice, all voting on the resolutions will be conducted on a poll. Due to technological reasons, shareholders viewing the meeting via conferencing software will not be able to vote on the poll and we therefore encourage all shareholders, and particularly those who cannot attend physically, to submit their proxy votes in advance of the meeting, so that they are registered and recorded at the AGM. Proxy votes can be lodged in advance of the AGM either by post or electronically. Detailed instructions are included in the Notes to the Notice of Annual General Meeting in the Annual Report. Please ensure that you act promptly on the notifications for voting, or consider contacting your share platform or wealth manager by their stipulated deadline to ensure that your votes are submitted on time. In addition, shareholders are encouraged to send any questions ahead of the AGM to the Board via the Company Secretary at the email address above. We will endeavour to answer relevant questions at the meeting or via the website depending on arrangements in place at the time.
If there are any changes to the above AGM arrangements, the Company will update shareholders through its website and, as appropriate, through an announcement on the London Stock Exchange.
My fellow Board members, representatives of JPMorgan and I look forward to the opportunity to meet and speak with shareholders after the formalities of the meeting have been concluded.
Stay Informed
The Company delivers email updates with regular news and views, as well as the latest performance. If you have not already signed up to receive these communications and you wish to do so, you can opt in via https://tinyurl.com/JUSC-Sign-Up or by scanning the QR code in the Annual Report.
Further, the board is keen to engage with shareholders to ensure that all views are represented in our deliberations, and I therefore welcome your questions and observations via email at jpmam.investment.trusts@jpmorgan.com.
Outlook
The Board continues to have high confidence in the investment team, and their investment philosophy and process which have been applied consistently to generate strong long-term returns for the Company. The political and economic backdrop is continuing to develop under the new administration as the old order is replaced with a revised political agenda, and a different way of running government and interacting with the rest of the world. While this introduces significant uncertainty, the new administration under Donald Trump has committed to supporting growth in the domestic economy, albeit early actions do not directly support this stated intention. We are confident that the investment team continues to focus their investment decisions on valuation-conscious, all-weather stocks that will be robust in the face of political and economic developments. With the relative valuation of small cap investments so attractive, and the US small cap bias towards the home market, we believe that as the domestic-growth oriented policies are implemented those that Invest in the Heart of America through the Company will benefit from strong investment returns over time.
Dominic Neary
Chair 28th March 2025
INVESTMENT MANAGER'S REPORT
Market Review
In 2024, the US economy and financial markets experienced another robust year. The S&P 500 Index achieved a second year of double-digit returns, posting an impressive return of more than 25% in US dollars and more than 27% in sterling. This remarkable growth was underpinned by resilient consumer spending and marked the fourth consecutive year of above-trend economic expansion.
US equity markets began 2024 on a strong note, fuelled by optimism that the economy would achieve a 'soft landing'. Initially, economists projected modest growth of only 1.2% growth for the year. However, GDP growth came in above expectations, with real GDP growth for the US increasing by 2.8% year-on-year in 2024. Consumption, which constitutes almost 70% of nominal GDP, has been especially resilient. Year-over-year, real consumer spending rose by 2% for goods, while durable goods and services both increased by 3%.
Throughout the year, the job market and interest rates remained central topics of discussion. Despite some concerns about an economic slowdown, employment has grown for 48 consecutive months and the unemployment rate concluded the year at 4.1%, only slightly higher than where it started, at 3.8%. Inflation made significant progress towards the Federal Reserve's 2% target, which allowed it to begin cutting interest rates. Federal policy has been targetting lower inflation since March 2022, when rates began increasing to slow the economy, and by August 2023 the benchmark rate reached its highest level in 23 years. As inflation moderated, rates were cut by 0.5 percentage points in September 2024, followed by two additional cuts, each of 0.25 percentage points. By year-end, the federal funds rate stood in a range of 4.25% to 4.5%.
The US Presidential election also had a significant impact on the markets, which experienced substantial gains following the results. This was largely driven by expectations that the new administration would implement tax cuts and other pro-growth policies. Furthermore, US Corporate earnings also boosted the market's performance, once again surpassing expectations. Earnings forecasts for 2024 rose steadily due to the supportive macroeconomic environment. Current projections indicate earnings growth of 12% year-on-year for 2024, notably higher than the ten-year average growth rate of 8%.
Within the small cap space, the market environment over the past year favoured more growth-oriented investments. The Russell 2000 Index posted an 11.5% gain in US Dollars and 13.3% in Sterling in 2024. While this performance lagged that of larger-cap peers, it matched the index's historical annualised return since 1978. Within the Russell 2000 index, all sectors except energy posted positive returns. Telecoms, Technology and Consumer Staples were the best performing sectors, while Energy, Health Care and Basic Materials were the worst performers.
Performance
Against this background, the Company's net asset value total return increased by +11.3 % in 2024, underperforming its benchmark, the Russell 2000 Index (Net) total return, which rose by +13.3% in sterling terms. Our portfolio seeks to invest in high quality companies at a reasonable valuation, and maintained a pro-cyclical tilt throughout the year. This focus on quality, however, was a headwind in a market that favoured growth-oriented and higher-momentum stocks.
Within the portfolio, we owned a number of securities which performed well, particularly in areas like Financials, Consumer Staples and Energy, where stock selection was positive. Throughout the year, and particularly in the fourth quarter (Q4), however, our portfolio faced challenges driven by heightened investor enthusiasm for technology stocks, particularly in themes like Artificial Intelligence (AI), quantum computing, and space, which make up a smaller proportion of our portfolio. Additionally, the increase in 10-year Treasury yields by 80 basis points during Q4 created further headwinds for some of our Industrial holdings. Although overall index returns were reasonable, factor performance was decidedly risk-on, with low returns on equity, non-earners, volatility, and momentum leading, which was a headwind for our quality-oriented style.
With regards to relative performance over the past year, our stock selection in the financials and consumer staples sectors contributed positively to performance. Within Financials, our overweight position in Stepstone Group and exposure to Evercore added to the Company's performance. Stepstone Group is a global private markets firm which manages investments in private equity, real estate, infrastructure, and private debt. Shares outperformed on account of solid financial results, significant fundraising achievements, and growth in fee-related earnings and margins. The company saw increases in private wealth assets under management and undeployed fee-earning capital. Additionally, the buyout of remaining stakes in its infrastructure, private debt, and real estate businesses positively impacted the stock. We believe Stepstone Group remains well-positioned to capitalise on the secular growth in private markets, and this underpins our ongoing conviction in the stock. Evercore, a provider of investment banking advisory services for mergers and acquisitions, performed strongly, fuelled by solid earnings, robust advisory revenues, and an anticipated recovery in capital markets. Strategic investments in talent, combined with market share gains in large deals also boosted investor confidence. While we still like the company, we are actively monitoring our holding on account of its recent outperformance and investors' high expectations from the stock.
Elsewhere, our exposure to DT Midstream (DTM) proved beneficial. This company provides natural gas transportation and storage services. The stock rose due to consistent profit growth and strategic expansions, including key project completions and pipeline acquisitions. The company's robust project backlog and increased demand for natural gas added to positive investor sentiment. We continue to view DTM as a quality, defensive energy company, and we remain comfortable with our holding.
On the other hand, our stock selection in the Industrials and Technology sectors detracted the most. Within Industrials, our overweight position in Janus International and exposure to Willscot hurt performance. Janus International manufactures and supplies turn-key self-storage and commercial and industrial building solutions. The stock underperformed due to declining revenues and earnings, driven by reduced volumes and pricing, particularly in the self-storage and commercial segments. Despite some growth in new construction, the company's overall financial performance was hampered by project delays and macroeconomic uncertainties. However, we remain confident in the longer-term prospects for the business, as the current challenges are macroeconomic in nature, rather than company specific. Willscot is the largest provider of modular office space and portable storage solutions. Shares declined due to volume weakness and macroeconomic challenges, including weak non-residential construction activity. The termination of the previously announced McGrath acquisition further added to the volatility. We remain comfortable with our position as the business is of high quality and is expected to recover as macroeconomic conditions improve.
Within Technology, our lack of exposure to Super Micro Computer was the largest detractor. This company manufactures server solutions for data centres. The stock performed well in 2024. Demand for AI servers and liquid cooling solutions was high, generating strong revenue growth and facilitating significant market share gains. However, we have avoided this name due to the company's failure to meet our quality threshold, as we have concerns about the competition environment, cash flow challenges, and regulatory risks.
Performance Attribution
Year ended 31st December 2024
| % | % | |
| Contributions to total returns | ||
| Benchmark return | 13.3 | |
| Asset Allocation | 2.2 | |
| Stock Selection* | (4.2) | |
| Investment Manager Contribution | (2.0) | |
| Portfolio total return | 11.3 | |
| Impact of cash/gearing* | 0.3 | |
| Management fee and Other administrative expenses | (0.9) | |
| Share buybacks | 0.6 | |
| Other effects | - | |
| Cum Income Net Asset Value total return | 11.3 | |
| Share Price total return | 18.7 |
| Movement in risk | |||
| status in year to | |||
| Principal risk | Description | Mitigating activities | 31st December 2024 |
| Investment Management and Performance | |||
| Under-performance | Poor implementation of the investment strategy may lead to underperformance against the Company's benchmark index and peer companies. | A broadly diversified portfolio of equities is managed in line with Board-approved investment restrictions and guidelines. Investments are monitored and reported on by the Manager who provides the Board with regular 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 Portfolio Managers, who participate at all Board meetings, and reviews data which show statistical measures of the Company's risk profile. The Portfolio Managers employ the Company's gearing within a strategic range set by the Board. In addition to regular Board reviews of investment strategy, the Board holds a separate meeting devoted to strategy each year. | No change |
| Market and Economic | Market risk arises from uncertainty about the future prices of the Company's investments, which might result from economic, fiscal and regulatory change, including the risk of global economic disruption and market volatility in the aftermath of COVID-19. Geopolitical risks will also affect the market and are currently heightened due to the war between Ukraine and Russia and more recently the conflict in the Middle East, and ongoing tensions with China. Market factors such as interest rates, inflation and equity market performance may impact the value of investments and the performance of the Company. | This risk is managed to some extent by diversification of investments and by regular communication with the Manager on matters of investment strategy and portfolio construction which will directly or indirectly include an assessment of these risks. The Board considers asset allocation, stock selection and levels of gearing on a regular basis and has set investment restrictions and guidelines, which are monitored and reported on by the Manager. The Board monitors the implementation and results of the investment process with the Manager. The Manager's market strategists are available for the Board and can discuss market trends. External consultants and experts can be accessed by the Board. The Board can, with shareholder approval look to amend the investment policy and objectives of the Company, if required, to enable investment in companies or assets which offer more appealing risk/return characteristics in prevailing economic conditions. | Increased |
| Marketing | |||
| Competitive positioning | Competing investment vehicles (e.g. ETFs) or new investment technologies may render the Company's shares unappealing to shareholders. | The Manager has a dedicated investment trust sales team that works closely with the Company's broker as well as current and prospective shareholders. Regular meetings are held with shareholders to try to ensure continued demand/interest. Both the Manager and the broker submit a sales activity report to each Board meeting and are available to discuss any issues throughout the year. In addition, the Manager's marketing team has focused on marketing more effectively to retail shareholders which represent a vast majority of the Company's shareholder base. | Increased |
| False adverse publicity | False adverse publicity via social platforms and networks could lead to reputational damage to the Company and a lack of engagement by/appetite of existing or potential shareholders. May lead to the discount widening. | Monitored by the Manager's PR and marketing teams. | Increased |
| Operational Risks | |||
| Discount Control | Investment trust shares often trade at discounts to their underlying NAV; they can also trade at a premium. Discounts and premiums can fluctuate considerably leading to volatile returns for shareholders. | The Board monitors the share price against the absolute and sector relative premium/discount levels. The Board reviews sales and marketing activity and sector relative performance, which it believes are the primary drivers of the relative premium/discount level. The Company has authority to buy back its existing shares or issue new shares to enhance the NAV per share for remaining shareholders when deemed appropriate. | Increased |
| Legislative change | Changes to financial or tax legislation in the UK may lead to changes to the operating model of the Company and/or reduce the appeal of the Company to shareholders. | The Manager has a team that considers proposed changes to legislation and relevant updates are reported to the Board. The Manager is also a member of the AIC Manager's Forum and Technical Committee. The Manager's Sales team is also aware of these changes and will form part of the feedback process. | Increased |
| Loss of Investment Team or Portfolio Manager | A sudden departure of the Portfolio Managers, or several members of the investment management team could result in reputational damage to the Company. | The Board seeks assurance that 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, as well as special efforts to retain key personnel. The Board engages with the senior management of the Manager in order to mitigate this risk. | No change |
| Outsourcing | Cyber security breaches or other events may cause disruption to, or failure of, the Manager's accounting, dealing or payments systems or the Registrar, Depositary or Custodian's records may prevent accurate reporting and monitoring of the Company's financial position or a misappropriation of assets. | Details of how the Board monitors the services provided by JPM and its associates and the key elements designed to provide effective risk management and internal control are included within the Risk Management and Internal Controls section of the Corporate Governance Statement in the Annual Report. The Manager has a dedicated cyber security team and budget that is focussed on identifying potential or actual threats. The Manager also has a Business Continuity Plan which includes Disaster Recovery Sites and work from home protocols and the relevant technology is regularly tested. The Manager confirms cyber security controls and BCP planning in place for key service providers. The Manager reports to Board on cyber security controls, BCP testing and the implementation of plans to mitigate the impact of not being able to access the office. | No change |
| Cyber Crime | Cyber attack on JPMorgan or the systems that the Manager uses to support the Company. These attacks can take many guises, targetting partners in the supply chain, social engineering (e.g. phising, smishing and vishing), denial of service (via a flood of malicious internet traffic) and ransomware. | The Manager has a Cyber security management programme in place with a multi billion dollar budget each year. The Manager's third party oversight team (TPO) is a dedicated function that establishes the risk management governance framework and enforces defined policies and standards for third party service providers. The Company benefits directly and/or indirectly from all elements of JPMorgan's Cyber Security programme including TPO. The controls are regularly tested and updates are given to the quarterly JPMF Audit, Risk, Compliance & Controls (ARCC) Committee and a summary of these reports is submitted to the Company's Audit Committee. The information technology controls around physical security of JPMorgan's data centres, security of its networks and security of its trading applications, are tested by independent auditors and reported every six months against the AAF Standard. The Company and the Manager have evidence from the major service providers that they have procedures in place to maintain the best practices in the fight against cybercrime and to ensure business resiliency. | No change |
| Environmental | |||
| Climate Change | Climate change has become one of the most critical issues confronting companies and their investors. Climate change can have a significant impact on the business models, sustainability and even viability of individual companies, whole sectors and even asset classes. | The Board receives ESG reports from the Manager on the portfolio and the way ESG considerations are integrated into the investment decision-making, so as to mitigate risk at the level of stock selection and portfolio construction. As extreme weather events become more common, the resiliency, business continuity planning and the location strategies of the Company's services providers will come under greater scrutiny. | Increased |
| Movement in risk | |||
| status in year to | |||
| Emerging risk | Description | Mitigating activities | 31st December 2024 |
| Political and Economic | Political issues and changes in financial or tax legislation in the UK or the US may lead to changes to the operating model of the Company and/or reduce the appeal of the Company to shareholders. The impact of increased spending on defence is likely to add to the ongoing debt burden from the COVID19 stimulus packages. When combined with other factors (for example; potential of stagflation, recession and the unknown consequences of the war in Ukraine) these could lead to material adverse movements in share prices. | The Manager monitors events and makes recommendations to the Board on accounting, dividend and tax policies and the Board seeks external advice where appropriate. | Increased |
| UK market attraction and/or liquidity | The investment decision process of investors may be negatively impacted by various factors which could lead to a lack of demand for the Company's shares. These factors include the potential impact of social upheaval in both the UK and the US and the consequences of a decline in the number of companies listed in the UK which could result in lower liquidity of the Company's shares. | The Manager has a dedicated investment trust sales team that works closely with the Company's broker as well as current and prospective shareholders. Regular meetings are held with shareholders to try to ensure demand/interest. | Increased |
| 2024 | 2023 | |||||
| Revenue | Capital | Total | Revenue | Capital | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Gains on investments held at fair value | ||||||
| through profit or loss | - | 28,833 | 28,833 | - | 10,889 | 10,889 |
| Net foreign currency (losses)/gains | - | (383) | (383) | - | 825 | 825 |
| Income from investments | 3,466 | 97 | 3,563 | 3,865 | 381 | 4,246 |
| Interest receivable | 579 | - | 579 | 500 | - | 500 |
| Gross return | 4,045 | 28,547 | 32,592 | 4,365 | 12,095 | 16,460 |
| Management fee | (407) | (1,626) | (2,033) | (401) | (1,602) | (2,003) |
| Other administrative expenses | (572) | - | (572) | (520) | - | (520) |
| Net return before finance costs and taxation | 3,066 | 26,921 | 29,987 | 3,444 | 10,493 | 13,937 |
| Finance costs | (256) | (1,021) | (1,277) | (304) | (1,218) | (1,522) |
| Net return before taxation | 2,810 | 25,900 | 28,710 | 3,140 | 9,275 | 12,415 |
| Taxation | (489) | - | (489) | (573) | (57) | (630) |
| Net return after taxation | 2,321 | 25,900 | 28,221 | 2,567 | 9,218 | 11,785 |
| Return per share | 3.74p | 41.72p | 45.46p | 3.98p | 14.30p | 18.28p |
| Called up | Capital | |||||
| share | Share | redemption | Capital | Revenue | ||
| capital | premium | reserve | reserves1 | reserve1 | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| At 31st December 2022 | 1,638 | 45,758 | 1,851 | 221,271 | 2,539 | 273,057 |
| Repurchase of shares into Treasury | - | - | - | (3,502) | - | (3,502) |
| Net return | - | - | - | 9,218 | 2,567 | 11,785 |
| Dividend paid in the year (note 2) | - | - | - | - | (1,615) | (1,615) |
| At 31st December 2023 | 1,638 | 45,758 | 1,851 | 226,987 | 3,491 | 279,725 |
| Repurchase of shares into Treasury | - | - | - | (12,242) | - | (12,242) |
| Repurchase and cancellation of forfeited shares2,3 | (3) | - | 3 | (42) | - | (42) |
| Net return | - | - | - | 25,900 | 2,321 | 28,221 |
| Dividends paid in the year (note 2) | - | - | - | - | (1,890) | (1,890) |
| Forfeiture of unclaimed dividends2 (note 2) | - | - | - | - | 17 | 17 |
| At 31st December 2024 | 1,635 | 45,758 | 1,854 | 240,603 | 3,939 | 293,789 |
| 2024 | 20231 | |
| £'000 | £'000 | |
| Fixed assets | ||
| Investments held at fair value through profit or loss | 316,510 | 283,986 |
| Current assets | ||
| Debtors | 265 | 308 |
| Current assets investments1 | 1,265 | 19,195 |
| Cash at bank1 | 10 | 42 |
| 1,540 | 19,545 | |
| Current liabilities | ||
| Creditors:amounts falling due within one year | (24,261) | (23,806) |
| Net current liabilities | (22,721) | (4,261) |
| Total assets less current liabilities | 293,789 | 279,725 |
| Net assets | 293,789 | 279,725 |
| Capital and reserves | ||
| Called up share capital | 1,635 | 1,638 |
| Share premium | 45,758 | 45,758 |
| Capital redemption reserve | 1,854 | 1,851 |
| Capital reserves | 240,603 | 226,987 |
| Revenue reserve | 3,939 | 3,491 |
| Total shareholders' funds | 293,789 | 279,725 |
| Net asset value per share (note 4) | 484.6p | 438.6p |
| 2024 | 2023 | |
| £'000 | £'000 | |
| Cash flows from operating activities | ||
| Net return before finance costs and taxation | 29,987 | 13,937 |
| Adjustment for: | ||
| Net gains on investments held at fair value through profit or loss | (28,833) | (10,889) |
| Net foreign currency losses/(gains) | 383 | (825) |
| Dividend income | (3,563) | (4,246) |
| Interest income | (579) | (500) |
| Realised gains/(losses) on foreign exchange transactions | 44 | (1) |
| Realised exchange losses on liquidity fund | (464) | (344) |
| Decrease in accrued income and other debtors | 1 | 10 |
| Increase in accrued expenses | 62 | 77 |
| Net cash outflow from operations before dividends, interest and taxation | (2,962) | (2,781) |
| Dividends received | 3,009 | 3,469 |
| Interest received | 657 | 447 |
| Overseas withholding tax recovered | 29 | 116 |
| Net cash inflow from operating activities | 733 | 1,251 |
| Purchases of investments | (120,370) | (70,750) |
| Sales of investments | 116,679 | 89,062 |
| Net cash (outflow)/inflow from investing activities | (3,691) | 18,312 |
| Dividends paid | (1,890) | (1,615) |
| Refund from forfeiture of unclaimed dividends | 17 | - |
| Net cost of repurchasing and cancelling forfeited shares2 | (42) | - |
| Repurchase of shares into Treasury | (12,242) | (3,502) |
| Repayment of bank loan | (7,850) | - |
| Draw down of bank loan | 7,888 | - |
| Loan interest paid | (1,305) | (1,625) |
| Net cash outflow from financing activities | (15,424) | (6,742) |
| (Decrease)/increase in cash and cash equivalents1 | (18,382) | 12,821 |
| Cash and cash equivalents at start of year1 | 19,237 | 6,652 |
| Exchange movements | 420 | (236) |
| Cash and cash equivalents at end of year1 | 1,275 | 19,237 |
| Cash and cash equivalents consist of1: | ||
| Cash at bank | 10 | 42 |
| Current asset investments in JPMorgan USD Liquidity Fund | 1,265 | 19,195 |
| Total | 1,275 | 19,237 |
| 2024 | 2023 | |||
| Pence | £'000 | Pence | £'000 | |
| Dividend paid | ||||
| Final dividend in respect of prior year | 3.0 | 1,890 | 2.5 | 1,615 |
| Total dividends paid in the year | 3.0 | 1,890 | 2.5 | 1,615 |
| Forfeiture of unclaimed dividends over 12 years | - | (17) | - | - |
| Net dividends | 3.0 | 1,873 | 2.5 | 1,615 |
| Dividend declared in respect of the year | ||||
| Final dividend | 3.1 | 1,879 | 3.0 | 1,913 |
| 2024 | 2023 | |||
| Pence | £'000 | Pence | £'000 | |
| Final dividend | 3.1 | 1,879 | 3.0 | 1,913 |
| Total dividend for Section 1158 purposes | 3.1 | 1,879 | 3.0 | 1,913 |
| 2024 | 2023 | |
| £'000 | £'000 | |
| Revenue return | 2,321 | 2,567 |
| Capital return | 25,900 | 9,218 |
| Total return | 28,221 | 11,785 |
| Weighted average number of shares, excluding Treasury shares, in | ||
| issue during the year | 62,082,503 | 64,460,117 |
| Revenue return per share | 3.74p | 3.98p |
| Capital return per share | 41.72p | 14.30p |
| Total return per share | 45.46p | 18.28p |
| 2024 | 2023 | |
| Net assets (£'000) | 293,789 | 279,725 |
| Number of shares in issue | 60,622,264 | 63,770,149 |
| Net asset value per share | 484.6p | 438.6p |