REG - JPMorganUS Small Cos - Final Results
18/03/2022 12:45
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RNS Number : 3108F JPMorgan US Smaller Co. IT 18 March 2022
LONDON STOCK EXCHANGE ANNOUNCEMENT
JPMORGAN US SMALLER COMPANIES INVESTMENT TRUST PLC
FINAL RESULTS FOR THE YEAR ENDED
31ST DECEMBER 2021
Legal Entity Identifier: 549300MDD7SOXDMBN667
Information disclosed in accordance with the DTR 4.1.3
CHAIRMAN'S STATEMENT
Performance
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 2021.
Despite the continuing impact of the COVID-19 pandemic, the Company's total
return on net assets over the year was +17.7% which compares favourably with
the increase of 15.7% in our benchmark, the Russell 2000 index in sterling
terms. Our share price performance was also strong, rising by 16.5% as the
shares remained at a small premium to net asset value (NAV) as at the end of
the year.
This year has seen a continued recovery in markets from the sell-off in early
2020 as sentiment improved and economic activity picked up. The Company's
benchmark, whilst still returning a healthy positive return for the 12 months,
is down from its highs of November 2021 as concerns around inflation and the
Omicron variant started to take hold in the last few weeks of 2021. The
Investment Managers continued with their disciplined approach to investing and
it is pleasing to report that the Company's NAV outperformed the benchmark for
the 12 months to 31st December 2021 especially as I had reported in my 2021
interim statement an underperformance of approximately 5%.
Full details of investment performance, changes to the portfolio and the
outlook can be found in the Investment Managers' report in the Annual Report
and Financial Statements.
Discount and Premium
As has been said in the past, the Board aims to align the Company's share
price movements to changes in its net asset value and monitors the discount or
premium at which the shares trade on a daily basis with the assistance of its
financial adviser and Manager. However, a number of factors make it difficult
to align share price and net asset value movements including the often
volatile prices of US smaller companies investments and the additional
volatility introduced by owning assets denominated in dollars whilst having a
share price and net asset value reported in sterling
Over the course of the year, the discount averaged 0.9%. Having begun the year
trading at a premium of 2.1% to NAV, the Company's shares moved to a discount
in June 2021, trading at an average discount of 3.8% until late November when
the Company's shares moved back to trading at a premium and ended the year at
a premium of 1.1% to NAV.
Share Issuance and Buybacks
To help with the management of the discount, we have in place the authority to
repurchase up to 14.99% of the Company's issued share capital and we will be
seeking renewal of this authority at the AGM. The Company's move from premium
to discount and back to a premium again is reflected in its share buyback and
issuance behaviour over the year. In the first half of 2021, while trading at
a premium to NAV, the Company issued 5,461,883 shares at an average premium to
NAV of just over 1.6%.
In subsequent months, the Company bought back 225,000 shares into Treasury in
periods when discount levels were particularly elevated, reflected in the
weighted average discount of 5.90% at which these shares were acquired. As the
Company again moved to trade at a premium, the Company issued shares at a
premium to NAV, issuing 100,000 shares from Treasury. Since the year end the
Company has issued a further 125,000 shares from Treasury and 75,000 new
ordinary shares under its ordinary share block listing facility. The Company
has also repurchased 430,526 shares into Treasury.
The Company's share buyback policy continues to have three major objectives;
to buy back shares with the aim of enhancing the NAV for remaining
shareholders, to minimise discount volatility and ultimately to ensure that
the shares do not trade at an excessive discount for a prolonged period of
time. Of course, our ability to achieve these outcomes will depend on
prevailing market conditions and the behaviour and risk appetites of
investors.
The Company will also look to issue shares to enhance shareholders' NAV and to
avoid the formation of an excessive premium which may not be in the best
interests of incoming and continuing shareholders alike.
Revenue and Dividend
The impact of the pandemic on the dividends received from the Company's
portfolio has remained relatively muted and the Board is therefore delighted
to recommend a dividend of 2.5p in respect of the financial year ended 31st
December 2021. Subject to shareholders' approval at the Annual General Meeting
(AGM), this dividend will be paid on 20th May 2022 to shareholders on the
register at the close of business on 19th April 2022.
Shareholders should note the Company's objective is unchanged and remains one
of capital growth and our dividend policy will therefore reflect the naturally
occurring income on the underlying portfolio.
Change of Annual Management Fees
In September, the Board was delighted to announce, following a review of the
Company's investment management fee arrangements with JPMorgan Funds Limited
(JPMF), a reduction in the annual management fees. With effect from 1st
January 2022, the annual investment management fee, previously 90bps on the
first £100 million of gross assets (excluding any holding in the JPM
Liquidity Fund) and 75bps on gross assets in excess of £100 million of assets
(excluding any holding in the JPM Liquidity Fund) changed to the following:
• A basic management fee of 70 bps per annum on all gross
assets.
• The definition of assets and the exclusions on investments
in J.P. Morgan managed funds will remain unchanged from the current
arrangements and the fee will continue to be calculated and paid monthly in
arrears.
Both the Board and JPMF worked together constructively in agreeing this new
investment management fee arrangement. Whilst determining the appropriate
level of fees took into account a range of factors, the overriding focus was
our obligation to the Company's shareholders to ensure they receive good
value investment management. The Board believes that this new fee structure
puts the Company in a competitive position relative to peers, and recognises
the expertise and resources that the JPMorgan Asset Management investment team
bring to this specialist asset class.
Gearing
During the year, the Company continued to utilise its revolving credit
facility to maintain a meaningful but modest level of gearing. The Board
renewed the loan facility in October, this is now for USD30 million
(previously USD25 million) and is for a 2 year term. It closed the year with a
gearing level of 7.4% having averaged approximately 7.5% throughout the year.
The Board believes that the use of gearing is a key advantage of the
investment trust structure and looks to maintain a consistent level of gearing
within its permitted 10% cash to 15% geared range. In response to changes in
the Manager's perception of longer-term opportunities and market risks, our
policy sees gearing adjusted rather than being used as a short term
market-timing tool.
Environment, Social and Governance (ESG) considerations
We provide a full description of how ESG is integrated into the investment
management process later in this report. The Board shares the Investment
Managers' view of the importance of ESG factors when making investments for
the long term and of the necessity of continued engagement with investee
companies throughout the duration of the investment. The Investment Managers'
report describes the developments in the ESG process that have taken place
during the year together with examples of how these are implemented in
practice. Further information on the Manager's ESG process and engagement
is set out in the ESG Report section within the Annual Report.
Board Succession
In January 2021 the Board, through its Nomination Committee, carried out a
comprehensive evaluation of the Board, its committees, the individual
Directors and the Chairman. Topics evaluated included the size and composition
of the Board, Board information and processes, shareholder engagement and
training and accountability. The report confirmed the efficacy of the Board.
Julia Le Blan, our longest-serving director, will retire from the Board at the
AGM in April 2022. She joined the Board in October 2012 and has made a
significant contribution to the performance of the Company. On behalf of the
Board, I would like to thank Julia for her exemplary chairing of the Audit
Committee and valuable contribution to the Company over the years.
As part of the succession planning the Board appointed Mandy Donald in January
2022 to succeed Julia Le Blan as Director and Chairman of the Audit
Committee. Mandy is a strong successor to Julia, and is an experienced
non-executive director and audit committee chair in a portfolio of roles.
In accordance with the UK Corporate Governance Code, Shefaly Yogendra,
Christopher Metcalfe, Dominic Neary and myself will retire at the forthcoming
AGM and, being eligible, will offer ourselves for reappointment by
shareholders. In addition Mandy Donald, having been appointed following the
year-end, will stand for appointment at the AGM.
Annual General Meeting
Unfortunately, COVID-19 restrictions prevented the holding of the Company's
AGM in April 2021 in the usual format. The Directors were disappointed not to
be able to have the usual interaction with shareholders at this forum.
However, current indications are that a more traditional format for the AGM
should be permissible in April 2022 and, to that end, the Company's
sixty-fifth AGM is scheduled to be held on Monday 25th April 2022 at 2.30 p.m.
at 60 Victoria Embankment, London EC4Y 0JP. The Board hopes to welcome as many
shareholders as possible.
We do of course strongly advise all shareholders to consider their own
personal circumstances before attending the AGM in person. For shareholders
wishing to follow the AGM proceedings but choosing not to attend, we will be
able to welcome you 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
invtrusts.cosec@jpmorgan.com.
As is 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 exercise their votes in advance of the meeting by completing
and submitting their form of proxy. 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 due to COVID-19, the
Company will update shareholders through the Company's website and, as
appropriate, through an announcement on the London Stock Exchange.
Outlook
As we move into 2022 we are undoubtedly facing some headwinds. There are
concerns around inflation and the levels that this may hit, interest rates
rises (both the timing of them and how many there will be) and also the
continued impact of supply chain issues. Clearly, the war in Ukraine could
have implications both in the medium and long term to global businesses and
economies. The Board and the Manager will continue to monitor this situation
closely. Whilst these factors may cause further volatility and additional
rotation between sectors (some of which we have seen already in the last few
weeks of 2021 and the first few weeks of 2022), earnings growth is expected to
be above average for 2022 albeit not as high as seen in 2021.
We are optimistic about the outlook for the Company and are confident in the
Investment Managers' ability to navigate the further challenges that this year
may bring by focussing on finding high quality businesses at attractive
valuation levels.
David Ross
Chairman
18th March 2022
INVESTMENT MANAGERS' REPORT
Market Review
After a strong year in 2020 with incredibly resilient performance, the Russell
2000 Index ended 2021 up +14.8% in US dollar terms and +15.7% in sterling
terms. Small cap stocks rose for the first half of the year, driven by
optimism around vaccine roll-outs and the economic recovery; however, the
highest returns were concentrated in unprofitable and lower quality stocks
driven by unprecedented retail trading activity. The second half of the year
marked a notable shift in investor risk appetite, as higher quality stocks
came back into favour, driven largely by expected Fed tapering and associated
rate hikes to combat persistent inflation.
Encouraging economic data bolstered by a steady rise in economic activity and
robust corporate earnings results buoyed the US equity markets throughout the
year. The extraordinary fiscal and monetary stimulus that helped shape the
pandemic recovery continued to provide an excellent backdrop for risk assets.
The rally was not without its challenges, as several volatility shocks tested
the market's resilience. While an unprecedented, targeted short squeeze
whipsawed the US equity market in the first quarter, a confluence of mounting
inflation fears, threats from COVID-19 variants, a widening fiscal deficit,
and supply disruptions loomed over the rest of the year. Finally, a fourth
wave of the pandemic in some parts of Europe and the new variant Omicron were
identified, triggering a sell-off in November. However, studies suggesting
that the Omicron variant might be less severe than previous variants helped
lift investors' confidence, and the markets ended on strength for the third
consecutive year. Although investors seemed to have looked beyond the
uncertainty, tightened lockdowns and restrictions in some parts of Asia and
Europe, along with rising COVID-19 cases globally, remain as potential areas
of concern that could further disrupt global supply chains and move inflation
higher.
In terms of style and market capitalisation, value made a comeback closing the
gap with growth, while large cap stocks outperformed small cap stocks this
year.
Performance
The Company's net asset value increased by 17.7% in 2021. The Trust
outperformed its benchmark, the Russell 2000 Index, which rose by 15.7% in
sterling terms. After a more challenging first half to the year, our
preference for quality was rewarded, resulting in strong excess returns in the
second half of the year. With regard to relative performance, our stock
selection as well as sector allocation in health care and financials was
beneficial.
A big driver of our outperformance in health care was our lack of exposure to
biotech. This cohort meaningfully underperformed as investors shunned
unprofitable, speculative companies, particularly in the latter half of the
year. Among individual names, our exposure to Syneos Health contributed for
the year. Syneos helps its customers conduct clinical trials as well as
commercialize new drugs. We like the stock as it allows us to have exposure to
mission critical areas of pharma and biotech, without the volatility of
investing behind a single product or drug. Syneos has a balanced portfolio of
large and small customers and focuses on higher growth therapeutic categories.
Within industrials, our overweight in WillScot Mobile Mini was the top
performance contributor for the year. The portable storage provider continues
to execute well and management is bullish on future growth. At the company's
investor day, management highlighted improving volumes and robust pricing.
Our overweight position in BJ's Wholesale Club within the consumer
discretionary sector helped performance. The club grocery store chain and
COVID beneficiary continued to report solid earnings with membership renewals
on both new and existing members expected to end the year at all-time highs.
We continue to like the stock, but have taken some profits on outperformance.
On the other hand, our stock selection in consumer discretionary and
technology detracted from performance.
Within technology, our overweight in Q2 Holdings hurt performance. The company
is a leading provider of cloud-based digital banking and lending solutions to
regional and community financial institutions in the US. As the economy
continues to reopen, high growth, high multiple stocks were sold in favour of
value and cyclical stocks. Q2 was a casualty of this, however, we believe both
near and long term fundamentals are strong. The company stands to benefit from
COVID-driven acceleration in digital transformation long term.
Our exposure to WEX within industrials was the largest detractor for the year.
WEX provides payment processing and information services to commercial and
government vehicle fleets globally, as well as payment processing solutions
for the travel industry and B2C payment solutions for consumer directed
healthcare services. The stock underperformed as rising COVID cases weighed on
travel payment volumes. Investors have also grown concerned with the
intensifying competitive landscape within payments. We continue to see demand
for WEX's solutions, as new business wins demonstrate how their technology
compares favourably to other marketplace solutions.
Among individual names, our exposure to Encompass Health was one of the
largest detractors for the year. Encompass Health is one of the largest
operators of Inpatient Rehabilitation Facilities (IRF) and Home Health &
Hospice centers. The company's third quarter performance was soft,
particularly in the Home Health & Hospice segment, as COVID drove staffing
challenges and higher than expected costs.
PERFORMANCE ATTRIBUTION
YEAR ENDED 31ST DECEMBER 2021
% %
Contributions to total returns
Benchmark return 15.7
Sector allocation 2.9
Stock selection -0.8
Investment Managers' contribution 2.1
Portfolio total return 17.8
Gearing 0.8
Management fee/other expenses -1.0
Share buyback/issuance 0.1
Other effects -0.1
Return on net assets(A) 17.7
Return to shareholders(A) 16.5
Source: Wilshire, 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.
(A) Alternative Performance Measure (APM).
Portfolio Positioning
With regard to our portfolio positioning, we continue to focus on finding
companies with durable franchises, good management teams and stable earnings
that trade at a discount to intrinsic value.
In the first half of the year, we added slightly more cyclicality to the
portfolio in areas like consumer and industrials while also adding to other
names we like on weakness with strong secular tailwinds. As the year went on,
consistent with our approach, we trimmed from positions that had performed
well, notably in financials. We redeployed those proceeds into newer positions
in consumer discretionary and health care tools and services. We also exited
several higher market capitalisation positions and those related to M&A
activity.
That being said, our sector exposure remained largely unchanged. On a relative
basis, the industrials and financials sectors are our largest overweight
exposures, making up over 40% of the portfolio. On the other hand, our largest
underweight is in the health care sector. The underweight is primarily a
result of our lack of exposure to biotechnology stocks; however, this
underweight has narrowed as new ideas made their way into the portfolio. In
April 2021 we started a new position in Agiliti Inc., a provider of medical
equipment rental, management and repair services to healthcare providers in
the US. They supply over 7,000 hospitals with items such as beds, fall
prevention equipment, chairs and surgical equipment. Agiliti also provides a
comprehensive onsite and offsite repair services for surgical instruments,
biomedical equipment and diagnostic imaging systems. We are attracted to the
company given its long operating history and multi-year track record of
increasing earnings. The company operates in fairly niche markets which have
very limited direct competition and Agiliti is a leading player. We believe
the company has a strong competitive advantage given its nationwide approach
with approximately 4,500 operators located near key customers. We like that
the core of Agiliti's business model is aimed at saving money for customers,
and improving operational efficiency. The company generates strong top line
growth and its valuation is attractive relative to peers.
Market Outlook
As we entered 2022, US economic activity remained strong, the US consumer in
aggregate was in good health, with plenty of spending power, and there seemed
to be little evidence to suggest that the economic recovery would be derailed.
However, we recognise that we are confronting some challenges. The human toll
of any conflict is devastating and events unfolding in Ukraine are deeply
upsetting. The Russian invasion of Ukraine resulted in international sanctions
on the country and the potential that the markets could face elevated
volatility ahead. Oil prices continued to rise due to geopolitical tensions
and supply side issues.
In the US, the economic cycle is maturing and the Federal Reserve is about to
embark on a more restrictive course, which always presents a headwind for the
market, especially highly valued growth stocks. Inflation and other
uncertainties, such as the tightening liquidity, fading fiscal and monetary
stimulus, more difficult growth comparisons, mid-term elections and
sensitivity to the imposed economic sanctions, is likely to be integral to
investor sentiment moving forward. Overall, we remain constructive on small
cap stocks given the favourable outlook for earnings growth and valuation,
especially relative to large cap stocks.
With the most vigorous part of this recovery now behind us, we are likely to
maintain a fairly low risk posture, with a particular focus on valuations.
Nonetheless, as always, we will remain on the look-out for attractive
investment opportunities that may be created by periods of unusual volatility
and are confident that our focus on owning high quality companies at
reasonable valuations would be rewarded in a more uncertain backdrop.
Don San Jose
Jon Brachle
Dan Percella
Investment Managers
18th March 2022
PRINCIPAL AND EMERGING RISKS
Principal and Emerging Risks
The Directors confirm that they have carried out a robust assessment of the
principal and emerging risks facing the Company, including those that would
threaten its business model, future performance, solvency or liquidity. With
the assistance of JPMF, the Audit Committee has drawn up a risk matrix, which
identifies the key risks to the Company. These are reviewed and noted by the
Board and the Board undertakes further work and engages with the Manager where
necessary. The risks identified and the broad categories in which they fall,
and the ways in which they are managed or mitigated are summarised below. The
AIC Code of Corporate Governance requires the Audit Committee to put in place
procedures to identify emerging risks. The key emerging risks identified are
also summarised below.
Principal Risk Description Mitigating Activities
Investment Management
and Performance
Underperformance Poor implementation of the investment strategy may lead to underperformance A broadly diversified portfolio of equities is managed in line with
against the Company's benchmark index and peer companies. 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 investment managers, who participate at all Board meetings, and
reviews data which show statistical measures of the Company's risk profile.
The investment 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.
Market and Economic Risk Market risk arises from uncertainty about the future prices of the company's The Board considers asset allocation, stock selection and levels of gearing on
investments, which might result from economic, fiscal and regulatory change, a regular basis and has set investment restrictions and guidelines, which are
including the continuing impact of COVID-19 and possibly further variants and monitored and reported on by the Manager. The Board monitors the
will weigh on recovery as economies try to emerge from the pandemic. implementation and results of the investment process with the Manager.
At present market risk is heightened due to various risks mentioned in the
Chairman and Managers' reports, for example, fear of sustained inflation,
interest rate rises and continuing supply chain issues. The mid-term elections
may also cause some increased volatility.
Geopolitical risks will also affect the market and are currently heightened
due to the war in Ukraine and tensions with China. The war in Ukraine has
caused volatility in the market and increased energy costs and is likely to
continue to disrupt global markets for some time.
Discount Control Risk Investment trusts shares often trade at discounts to their underlying NAV; The Board monitors the share price against the absolute and sector relative
they can also trade at a premium. Discounts and premiums can fluctuate premium/discount levels. The Board reviews sales and marketing activity and
considerably leading to volatile returns for shareholders. 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.
Shareholder Demand Certain buyers within the sector will only consider investing into an The Board reviews sales and marketing activity and it also receives regular
investment trust where its AUM is over a certain level; the Company's AUM feedback via the Manager's sales team from both existing and prospective
currently stands below these levels. shareholders.
Loss of Investment Team or Portfolio Manager A sudden departure of the investment managers, or several members of the The Board seeks assurance that the Manager takes steps to reduce the
investment management team could result in a short term deterioration in likelihood of such an event by ensuring appropriate succession planning and
investment performance. 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.
Operational Risks
Outsourcing Disruption to, or failure of, the Manager's accounting, dealing or payments Details of how the Board monitors the services provided by JPM and its
systems or the Registrar, Depositary or Custodian's records may prevent associates and the key elements designed to provide effective risk management
accurate reporting and monitoring of the Company's financial position or a and internal control are included within the Risk Management and Internal
misappropriation of assets. Controls section of the Corporate Governance Statement in the Annual Report.
The Manager has a comprehensive business continuity plan which facilitates
continued operation of the business in the event of a service disruption
(including and disruption resulting from the COVID-19 pathogen. Since the
introduction of the COVID-19 restrictions, Directors have received assurances
that the Manager and its key third party service providers have all been able
to maintain service levels.
Cyber Crime The threat of cyber attack, in all guises, is regarded as at least as The Company benefits directly and/or indirectly from all elements of
important as more traditional physical threats to business continuity and JPMorgan's Cyber Security programme. The information technology controls
security. 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 has sought assurances 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.
Corporate Governance
Statutory and Regulatory Compliance Failure to comply with relevant statute law or regulation may have an impact The Board relies on the services of its Company Secretary, the Manager and its
on the Company both in terms of fines and in terms of its ability to continue professional advisers to ensure compliance with the Companies Act 2006, the
to operate. UKLA Listing Rules, DTRs, MAR and AIFMD. Details of the Company's compliance
with Corporate Governance best practice, are set out in the Corporate
Also, the Company's business model could become non-viable as a result of new Governance Statement in the Annual Report.
or revised rules or regulations arising from, for example, policy change or
political impact. The Board receives regular reports from its broker, depositary, registrar and
Manager as well as its legal advisers and the Association of Investment
Companies on changes to regulations which could impact the Company and its
industry. The Company monitors events and relies on the Manager and its key
third party providers to manage this risk by preparing for any changes.
Environmental
Climate Change Climate change has become one of the most critical issues confronting The Board receives ESG reports from the Manager on the portfolio and the way
companies and their investors. Climate change can have a significant impact on ESG considerations are integrated into the investment decision-making, so as
the business models, sustainability and even viability of individual to mitigate risk at the level of stock selection and portfolio construction.
companies, whole sectors and even asset classes. 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.
Emerging Risk Description Mitigating Activities
Political and Economic Political issues and changes in financial or tax legislation in the UK or the The Manager monitors events and makes recommendations to the Board on
US may lead to changes to the operating model of the Company and/or reduce the accounting, dividend and tax policies and the Board seeks external advice
appeal of the Company to shareholders. where appropriate.
Global Pandemics The emergence and spread of coronavirus (COVID-19) is a global pandemic risk Time after time, markets have recovered, albeit over varying and sometimes
that poses a significant risk to the Company's portfolio. COVID-19 has extended time periods, and so the Board does have an expectation that the
highlighted the speed and extent of economic damage that can arise from a portfolio's holdings will not suffer a material long-term impact and should
pandemic. While current vaccination programme results are hopeful, the risk recover. The Board receives reports on the business continuity plans of the
remains that new variants may not respond to existing vaccines, may be more Manager and other key service providers. The effectiveness of these measures
lethal and may spread as global travel opens up again. have been assessed throughout the course of the COVID-19 pandemic and the
Board will continue to monitor developments as they occur and seek to learn
lessons which may be of use in the event of future pandemics. Should the virus
become more virulent than is currently the case, it may present risks to the
operations of the Company, its Manager and other major service providers.
Should efforts to control a pandemic prove ineffectual or meet with
substantial levels of public opposition, there is the risk of social disorder
arising at a local, national or international level. Even limited or localised
societal breakdown may threaten both the ability of the Company to operate,
the ability of investors to transact in the Company's securities and
ultimately the ability of the Company to pursue its investment objective and
purpose.
Market Risk Inappropriate Government/Central banks fiscal or monetary responses to the The Manager's market strategists are available for the Board and can discuss
debt burden arising from the COVID-19 stimulus packages combined with market trends. External consultants and experts can be accessed by the Board.
inflation, the potential of stagflation, economies threatened by recession and The Board can, with shareholder approval look to amend the investment policy
the unknown consequences of the war in Ukraine could lead to material adverse and objectives of the Company, if required, to enable investment in companies
movements in asset prices. These factors, in the long term, could also render or assets which offer more appealing risk/return characteristics in prevailing
the Company'-s objectives and policies unachievable. economic conditions.
Ongoing shareholder demand Competing investment vehicles (e.g. ETFs) or new investment technologies may The Manager has a dedicated investment trust sales team that works closely
render the Company's shares unappealing to shareholders. 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.
LONG TERM VIABILITY
The Company is an investment trust with an objective of achieving capital
growth from investing in US smaller companies. Taking account of the Company's
current position, the principal and emerging risks that it faces and their
potential impact on its future development and prospects, the Directors have
assessed the prospects of the Company, to the extent that they are able to do
so, over the next five years. The Company has no loan covenants or liabilities
that cannot be readily met and the Directors have reviewed income and expense
projections and the liquidity of the investment portfolio in making their
assessment. They have made that assessment by considering those principal and
emerging risks, the Company's investment objective and strategy, the
investment capabilities of the Manager and the outlook for the US economy and
equity market. They have examined the robustness of these base case estimates
using further severe but plausible scenarios, including the market
contractions caused by the 2008 financial crisis, the ongoing COVID-19
pandemic and the continuing war in Ukraine.
In determining the appropriate period of assessment the Directors had regard
to their view that, given the Company's objective of achieving capital growth,
shareholders should consider the Company as a long term investment
proposition. This is consistent with advice provided by independent financial
advisers and wealth managers, that investors should consider investing in
equities for a minimum of five years. The Directors also take account of the
inherent uncertainties of equity markets and the existence of a continuation
vote every five years. As a result of all these deliberations, the Directors
consider five years to be an appropriate time horizon to assess the Company's
viability.
The Directors confirm that they have a reasonable expectation that the Company
will be able to continue in operation, subject to shareholders voting in
favour of continuation at the AGM in 2025, and meet its liabilities as they
fall due over the next five years until 31st December 2026. This reasonable
expectation is subject to there being no significant adverse change to the
regulatory or taxation environment for investment trusts; and subject to there
being no sustained adverse investment performance by the current or any
successive investment manager, that may result in the Company not being able
to maintain a supportive shareholder base.
TRANSACTIONS WITH THE MANAGER
Details of the management contract are set out in the Directors' Report on
page l. The management fee payable to the Manager for the year was £2,341,000
(2020: £1,643,000) of which £nil (2020: £nil) was outstanding at the year
end.
Included in administration expenses in note 6 on page l are safe custody fees
amounting to £3,000 (2020: £2,000) payable to JPMorgan Chase Bank, N.A. of
which £1,000 (2020: £nil) was outstanding at the year end.
The Company also holds cash in the JPMorgan US Dollar Liquidity Fund, which is
managed by JPMorgan. At the year end this was valued at £3.0 million (2020:
£6.0 million). Income amounting to £5,000 (2020: £68,000) was receivable
during the year of which £nil (2020: £nil) was outstanding at the year end.
The JPMorgan US Dollar Liquidity Fund does not charge a fee and the Company
does not invest in any other investment fund managed or advised by JPMorgan.
Handling charges on dealing transactions amounting to £6,000 (2020: £6,000)
were payable to JPMorgan Chase Bank, N.A. during the year of which £1,000
(2020: £1,000) was outstanding at the year end.
At the year end, total cash of £27,000 (2020: £3,000) was held with JPMorgan
Chase Bank, N.A. A net amount of interest of £25,000 (2020: £nil) was
receivable by the Company during the year from JPMorgan Chase Bank, N.A of
which £nil (2020: £nil) was outstanding at the year end.
TRANSACTIONS WITH RELATED PARTIES
Full details of Directors' remuneration and shareholdings can be found in the
Directors' Remuneration Report within the Annual Report.
STATEMENT OF DIRECTORS'RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and the
Financial Statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare the Annual Report and 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,
comprising Financial Reporting Standard 102, the Financial Reporting Standard
applicable in the UK and Republic of Ireland (FRS 102) 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
Financial Statements are fair, balanced and understandable, provide the
information necessary for shareholders to assess the Company's position and
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 net 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 estimates that are reasonable and
prudent;
• state whether applicable UK Accounting Standards, comprising
FRS 102, have been followed, subject to any material departures disclosed and
explained in the financial statements;
• prepare the financial statements on a going concern basis
unless it is inappropriate to presume that the Company will continue in
business; and
• notify the Company's shareholders in writing about the use,
if any, of disclosure exemptions in FRS 102 in the preparation of the
financial statements
and the Directors confirm that they have done so.
The Directors are responsible for keeping adequate 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.
Under applicable law and regulations the Directors are also responsible for
preparing a Directors' Report and Directors' Remuneration Report that comply
with that law and those regulations.
Each of the Directors, whose names and functions are listed in the Annual
Report 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 and emerging risks and
uncertainties that it faces.
The Board confirms that it is satisfied that the Annual Report and Financial
Statements taken as a whole are fair, balanced and understandable and provide
the information necessary for shareholders to assess the Company's position
and performance, business model and strategy.
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 Company, together with a description of the principal
risks and uncertainties that it faces.
The Financial Statements are published on the www.jpmussmallercompanies.co.uk
website, which is maintained by the 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 Auditors 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 to the
website. The accounts are prepared in accordance with UK legislation, which
may differ from legislation in other jurisdictions.
For and on behalf of the Board
David Ross
Chairman
18th March 2022
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31ST DECEMBER 2021
2021 2020
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Gains on investments held at fair value
through profit or loss - 44,039 44,039 - 30,977 30,977
Net foreign currency (losses)/gains on
cash and loans - (284) (284) - 213 213
Income from investments 3,236 - 3,236 2,894 - 2,894
Interest receivable 30 - 30 68 - 68
Gross return 3,266 43,755 47,021 2,962 31,190 34,152
Management fee (468) (1,873) (2,341) (329) (1,314) (1,643)
Other administrative expenses (422) - (422) (402) - (402)
Net return before finance costs
and taxation 2,376 41,882 44,258 2,231 29,876 32,107
Finance costs (51) (201) (252) (55) (217) (272)
Net return before taxation 2,325 41,681 44,006 2,176 29,659 31,835
Taxation (477) - (477) (416) - (416)
Net return after taxation 1,848 41,681 43,529 1,760 29,659 31,419
Return per share (note 2) 2.87p 64.81p 67.68p 3.00p 50.59p 53.59p
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31ST DECEMBER 2021
Called up Capital
share Share redemption Capital Revenue
capital Premium reserve reserves(1) reserve(1) Total
£'000 £'000 £'000 £'000 £'000 £'000
At 31st December 2019 1,445 13,392 1,851 179,718 1,846 198,252
Issue of new Ordinary shares 54 8,096 - - - 8,150
Repurchase of shares into Treasury - - - (972) - (972)
Reissue of shares from Treasury - 482 - 972 - 1,454
Net return for the year - - - 29,659 1,760 31,419
Dividends paid in the year (note 3) - - - - (1,464) (1,464)
At 31st December 2020 1,499 21,970 1,851 209,377 2,142 236,839
Issue of new Ordinary shares 137 23,354 - - - 23,491
Shares reissued from Treasury - 43 - 417 - 460
Repurchase of shares into Treasury - - - (939) - (939)
Net return for the year - - - 41,681 1,848 43,529
Dividends paid in the year (note 3) - - - - (1,597) (1,597)
At 31st December 2021 1,636 45,367 1,851 250,536 2,393 301,783
(1) These reserves form the distributable reserves of the Company and may be
used to fund distributions to investors.
STATEMENT OF FINANCIAL POSITION
AS AT 31ST DECEMBER 2021
2021 2020
£'000 £'000
Fixed assets
Investments held at fair value through profit or loss 322,123 251,210
Current assets
Debtors 559 612
Cash and cash equivalents 3,057 5,985
3,616 6,597
Creditors: amounts falling due within one year (1,807) (20,967)
Derivative financial liabilities - (1)
Net current assets/(liabilities) 1,809 (14,371)
Total assets less current liabilities 323,932 236,839
Creditors: amounts falling due after more than one year (22,149) -
Net assets 301,783 236,839
Capital and reserves
Called up share capital 1,636 1,499
Share premium 45,367 21,970
Capital redemption reserve 1,851 1,851
Capital reserves 250,536 209,377
Revenue reserve 2,393 2,142
Total shareholders' funds 301,783 236,839
Net asset value per share (note 4) 462.1p 394.9p
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31ST DECEMBER 2021
2021 2020
£'000 £'000
Net cash outflow from operations before dividends and interest (2,710) (2,070)
Dividends received 2,694 2,458
Interest received 30 68
Overseas tax recovered 50 41
Interest paid (240) (323)
Net cash (outflow)/inflow from operating activities (176) 174
Purchases of investments (105,707) (105,374)
Sales of investments 77,565 96,021
Settlement of foreign currency contracts 5 4
Net cash outflow from investing activities (28,137) (9,349)
Dividends paid (1,597) (1,464)
Issue of Ordinary shares 23,891 8,136
Shares reissued from Treasury 460 1,454
Repurchase of shares into Treasury (939) (972)
Drawdown of bank loan 3,531 3,800
Net cash inflow from financing activities 25,346 10,954
(Decrease)/increase in cash and cash equivalents (2,967) 1,779
Cash and cash equivalents at start of year 5,985 4,605
Exchange movements 39 (399)
Cash and cash equivalents at end of year 3,057 5,985
(Decrease)/increase in cash and cash equivalents (2,967) 1,779
Cash and cash equivalents consist of:
Cash and short term deposits 27 3
Cash held in JPMorgan US Dollar Liquidity Fund 3,030 5,982
Total 3,057 5,985
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31ST DECEMBER 2021
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, and in accordance
with the Companies Act 2006, United Kingdom Generally Accepted Accounting
Practice (UK GAAP), including 'the Financial Reporting Standard applicable in
the UK and Republic of Ireland' (FRS 102) 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 April 2021.
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 Audit Committee Report in the 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
2021 2020
£'000 £'000
Revenue return 1,848 1,760
Capital return 41,681 29,659
Total return 43,529 31,419
Weighted average number of shares, excluding Treasury shares, in issue during 64,314,208 58,620,594
the year
Revenue return per share 2.87p 3.00p
Capital return per share 64.81p 50.59p
Total return per share 67.68p 53.59p
3. Dividends
(a) Dividends paid and declared
2021 2020
£'000 £'000
Dividend paid
2020 final dividend of 2.5p (2019: 2.5p) paid to shareholders in May 2021 1,597 1,464
Dividend declared
2021 final dividend of 2.5p (2020: 2.5p) declared 1,633 1,499
All dividends paid and declared in the year have been funded from the revenue
reserve. The dividend declared in respect of the year ended 31st December 2020
amounted to £1,499,000. However, the amount paid amounted to £1,597,000 due
to shares issued after the balance sheet but prior to the share register
record date.
The final dividend has been declared in respect of the year ended 31st
December 2021. In accordance with the accounting policy of the Company, this
dividend will be reflected in the accounts for the year ending 31st December
2022.
(b) Dividends for the purposes of Section 1158 of the Corporation Tax Act
2010 (Section 1158)
The requirements of Section 1158 are considered on the basis of dividends
declared in respect of the financial year as shown below. The revenue
available for distribution by way of dividend for the year is £1,848,000
(2020: £1,760,000).
2021 2020
£'000 £'000
2021 final dividend of 2.5p (2020: 2.5p) declared 1,633 1,499
4. Net asset value per share
2021 2020
Net assets (£'000) 301,783 236,839
Number of shares in issue 65,306,265 59,969,382
Net asset value per share 462.1p 394.9p
5. Status of results announcement
2020 Financial Information
The figures and financial information for 2020 are extracted from the
published Annual Report and Financial Statements for the year ended 31st
December 2020 and do not constitute the statutory accounts for the year. The
Annual Report and Financial Statements have 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.
2021 Financial Information
The figures and financial information for 2021 are extracted from the Annual
Report and Financial Statements for the year ended 31st December 2021 and do
not constitute the statutory accounts for that year. The Annual Report and
Financial Statements 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.
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.
For further information, please contact:
Lucy Dina
For and on behalf of JPMorgan Funds Limited,
Company Secretary
020 7742 4000
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.
JPMORGAN FUNDS LIMITED
ENDS
A copy of the annual report will be submitted to the FCA's National Storage
Mechanism and will shortly be available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
The Annual Report will shortly be available on the Company's website at
www.jpmussmallercompanies.co.uk (http://www.jpmussmallercompanies.co.uk) where
up-to-date information on the Company, including daily NAV and share prices,
factsheets and portfolio information can also be found.
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