So thank you, Tristan and James.
I'm Helgi Skibeli, portfolio manager of JGGI.
I've been with JP Morgan for about 30 years, and the last 25
years managing portfolios within this same process.
So James, Tim, and I will give a presentation of JGGI.
I will start by giving you an overview of our approach
to managing the strategy, and then James
will discuss our outlook and current portfolio positioning.
Finally, Tim will discuss our approach
to ESG and the investment performance
that we have achieved.
And then we would be delighted to answer any questions
that you may have.
So with that, let's go to the first slide, James.
So what is JGGI?
It is our top 50 global ideas.
It's all about stock selection.
It's an unconstrained, "go anywhere" strategy.
We have the luxury of going anywhere in the world,
any region, any sector, to pick the very best ideas
that we may have.
We are supported by this amazing global research
team at JP Morgan.
We have between 80 and 100 senior investment professionals
in this team, and they cover 2,500 stocks.
So think about that.
2,500 stocks is an enormous opportunity set for us,
and it's more than 90% of the world's market cap.
So that's a huge advantage right there.
JGGI is also offering a really attractive combination,
I would say, of long-term capital appreciation
growth and 4% dividend yield.
This is a really unique combination, which
is unusual in this industry.
And you can also see that since this team was
put in place about 4 and 1/2 years ago managing
the strategy, we have achieved 4.3% annualized performance,
compared to the MSCI ACWI index.
So you can go to the next slide, James.
So another way of looking at that performance
is, if you invested in this strategy in April 2019,
when we started managing this strategy,
you would have achieved a total return of 75% from that date
on until today.
And if you invested in the index instead, in an index fund,
you would have achieved 45%.
So the difference of 30% is what you
are left with by believing in us and trusting in us,
and that is our job also going forward,
to make sure that we achieve great investment results.
So now you can go to the next slide, James.
One more slide.
There we are.
So how do we achieve this?
How do we achieve such great performance?
So we typically invest in stocks with three key characteristics.
The first one is superior quality of earnings.
So what do we mean by that?
So our global research team has a really rigorous approach
to think about what kind of economics or profitability
does the business have today.
How sustainable is that?
What kind of cash flows can we expect over the next 7 to 10
years, maybe, meaning, is there really duration to these cash
flows and earnings that you see today?
And the third point is governance.
Is there management, is there a board in place,
that will make sure that we as shareholders will benefit
from cash flows in the future so we'll be receiving
the dividends and the buybacks that we think
should take place?
So economic summation and governance
will determine how great the business is,
and we, or our research department,
is dividing the universe into premium quality companies,
these are the best quality companies in the world,
and everybody else.
So what you can see here on the left side
is that 80% of the portfolio right
now resides in the top quality companies of this world.
And this 80% is very representative of the ratio
over time.
Secondly, you can see in the middle
that we own companies that are growing faster than the market.
So right now, our average holding
has a 3% growth advantage, on average,
compared to the market.
So we make five-year forecasts.
Every analyst has a framework where
we come up with long-term earnings and cash flow
forecasts.
So these companies that we own in that framework
has an annual 3% growth advantage to everybody else
out there.
Then we do that, amazingly, at the valuation level, which
is very similar to the markets.
Right now, we have a free cash flow yield portfolio
that's the same as the market.
So we invest in companies that are
long-term winners with premium quality franchises that
can grow faster than the market, but at the same valuation
as the market.
That's an amazing combination that leads
to our performance over time.
Now you can go to the next slide, James.
Some people sometimes say to us, well, you
can't do that if you're not a growth manager.
We are not a growth manager, and we really
would like to stress that point for you today.
So on the left side here is what you see a styled map,
and the blue cloud are quarterly observations of JGGI.
And the red dot that you can see is the index itself.
So the blue dots are really close to the red dots,
meaning that the overall risk characteristics
of this portfolio is always really close to the index.
It's never growth portfolio.
It's never value portfolio either,
for that matter, or mid cap or small cap.
it's always large cap core.
And you can see on the right side
that, over the last 4 and 1/2 years,
we have gone through three style regimes.
First, a very strong growth market that ended in late '21.
Then there was a relatively strong value market in '22.
And this last year has been the most extreme growth environment
ever.
I'm sure all of you have heard about Magnificent
Seven, the highest concentration of growth markets
ever in history, et cetera.
But importantly, we have outperformed
in each one of those three.
So this is truly a style-agnostic, all weather
portfolio.
We don't need value, or growth, or anything.
We can just perform great in any environment.
That is one big advantage of this strategy.
Now you can go to the next slide, James.
So how do we pick stocks?
What is it that we look at that's so special?
So we typically have three criteria that we really
emphasize in this portfolio.
This is a very consistent process
that we have been sticking to for a very long time,
and there are three criteria that we use.
The first one is valuation.
The second one is insight.
And the third one is conviction, or confidence.
So valuation I talked a bit about already.
We want to buy stocks that are highly rated,
stocks that, on a relative basis within their global sector,
appear as really undervalued compared to everybody else's
sector.
So there is a real consistent valuation discipline
within this strategy.
The second one, insight, means that we work very closely
with the analysts.
We always work really closely with this amazing research team
to really understand the kind of research they have done.
How did they collect data?
What data did they collect?
How did that process that data?
What kind of conclusions did they get to, and why?
Why do they have a real unique differentiated insight
versus the market?
The more differentiated and unique that
insight is, the more we like the idea.
And confidence, the last born, or conviction,
is basically related to what I talked about when it comes
to premium quality franchises.
We want to own stocks where we have high conviction
in the trajectory of earnings and cash flows the next three
to five years.
So the range of outcomes five years out is really narrow.
That's what we like to do.
So the more we can find that the valuation signals
unique insights and a real premium quality company
that we believe in the next five years,
the more we believe in each of those three factors
at the same time, the more we like that stock,
and the more we're going to own that stock portfolio.
Not all our active sizes are the same.
Some are much bigger than others,
and those are top holdings, and they
have lots of valuation insight and confidence,
or conviction, all at the same time.
So now you can go to the next slide, James.
There's our team.
Three of us you can see together with the rest
of the PM's and the global core team here at JP Morgan.
We are nine investors in this team,
and a really nice balance between really
seasoned, experienced portfolio managers
and up-and-coming talent.
In addition to JGGI, we also manage two other strategies
in this team.
And what has become more and more apparent
in recent years is that we have really sophisticated,
advanced analytical tools at our disposal at JP Morgan, such
that we can use our data to really manage
risk to construct portfolios to really hone in
on these advantages that I've talked about already.
We want to have as much stock-specific risk
as we possibly can in the portfolio and much less country
risk, factor risk, macro risk, these things that we
can't control, these things where
we don't have an advantage.
We have a huge advantage understanding
industries and companies better than the competition.
With really advanced portfolio analytics,
we can really hone in on those and maximize that portion
of risk in our portfolio.
Now you can go to the next slide, James.
And here's the great research team.
Been around for a long time, this team.
40 years.
We started off this process and this team in the 1980s.
Really consistent execution of that
process over these 40 years.
Amazing team based in New York, based in London,
based in several Asian cities, all over the world,
with 40 different nationalities.
A huge amount of diversity.
Diversity leads to lots of different opinions, views,
insights.
It's just an amazing thing.
So again, back to our global data advantage.
So we have collected and saved our earnings and cash flow
forecasts every day in this team for 40 years for 2,500 stocks.
You can imagine what an incredible database
that we have at our disposal.
And with really advanced data analytics
that we have today in the team, and AI is also
coming very strong within this process and JPMorgan,
our advantage is just getting better all the time.
So with that, I will hand it over to you, James.
Thank you, Helgi.
Can you hear me?
Yeah?
OK.
So I'll take you through the positioning of the strategy.
And here, you can see how the portfolio is positioned
across the core universe.
So you have your high-growth cohorts at the top,
you have your defensives on the left,
and you have your cyclicals on the right-hand side.
And I just want to make three key points.
And this is a very top-level perspective.
But first of all is that we are overweight,
the high-growth cohort.
About 9% overweight high-growth.
And within that, we're more overweight to the high-growth
cyclicals.
In particular, the Silicon Stars or the semiconductor cycle.
Second to that is that we are overweight the defensive part
of the market.
So you can see towards that left-hand side
that we have about an 8% overweight to defensives.
We've been increasing that position through time.
Basically, based on where valuations
have gone over the course of this year,
they've become increasingly attractive.
And therefore, we have been slowly adding to that.
In particular, we've been adding to the high-quality parts
of defensive.
So here's what we call the Steady Stalwarts.
That's made up of your exchanges, your non-life
insurance companies.
So if you take Chicago Metal Exchange,
for example, CME, US listed, it's an asset-light exchange.
Nice operational leverage, good growth profile,
trading at attractive prices.
It's been a real performer over the last quarter as well.
And then finally, to flag that we're also
significantly underweight to the low-growth cyclical part
of the market.
And while valuations range from anywhere
that's reasonable to overvalued when you look
at the industrial cyclical part of the market,
really, our main concern here is where we think earnings can go.
We believe that this part of the market, the margins
are significantly above normal, and we
think that there's a reasonable risk of downside
to these numbers.
So in particular, if you think about your consumer cyclicals,
they've been a real COVID winner, all those stimulus
checks that have been coming through
and how that's been pushed into the consumer cycle,
in particular, the consumer electronics part of the market.
But going forward, we think that those earnings are at risk.
So you're seeing those consumer savings coming down,
particularly within the low-income demographics.
You're seeing consumer credit tightening.
And finally, you're seeing the oil price
being 15% higher than where it was six months ago.
That's going to really begin to bite the underlying consumer.
So for that reason, we have a significant underweight
to this part of the market.
But again, we want to give you that balanced core portfolio.
So within the core space, within the cyclical space,
we do like the Silicon Stars.
That's your semiconductor cycle.
This is a part of the market that has been over-investing
for several years.
We think that capital intensity will come down,
and with that, your free cash flow will return,
margins will improve.
And long-term, we think that AI means a better growth profile.
Whether you're thinking about GPUs, CPUs, or memory,
we think the volume of chips is likely to increase.
And overall, this is typically where you
find higher-quality businesses.
So with that said, if we can flip over the page.
Here, you can see our top 10 holdings.
And again, I'm just going to make three key points on this.
First is that this is a high-conviction, highly
concentrated strategy.
So these top 10 holdings make up over 1/3
of the entire portfolio.
Second is that we're playing into a broad number
of attractive growth structural trends.
So whether you're looking at Amazon,
a company that has invested over $160 billion
over the past three years, which compares to $30 billion
in the prior three years, what that's going to give you
is a state of the art warehouse distribution facility.
What that's then going to give you is better ability
to facilitate next-day delivery, which we know from history
comes with better pricing, better volumes, both of which
should improve the margin.
And at the same time, that capital intensity
should come down, further boosting free cash flow
generation.
Or if you look at something like Microsoft,
that's our third-largest overweight.
This is fast becoming the market leader
in cloud computing, an area that we see as high-growth
for many years to come.
But it also has one of the best large language models
in the world with their ChatGPT, which I'm sure many of you
here have used, and that will only further
improve their cloud offering.
And then maybe finally to finish off just on Mastercard.
We see plenty of growth as you go from a cash
to a cashless society, particularly
within the emerging markets.
But don't forget that even in the US alone,
35% of transactions are still done via cash or via cheques.
I remember going into New York and seeing
someone pay for their supermarket bills with a check.
I was quite stunned.
We don't do that so much in the UK.
But just to give you that feeling that there still
is plenty of growth within the business.
It's asset-light.
And on that point, just to finish off the third point
that there are some commonalities between the names
that you see here, between these top 10
names, which is that a lot of these names are asset-light.
They are high-quality businesses,
they're the market leaders in the industries in which they
operate, we think they do have pricing power,
and they're trading at attractive valuations.
With that, I'm going to hand you over to Tim.
Thank you, James, and I hope you can all hear me.
So what I'm going to do now is just
take you through a couple of examples of ESG integration
in our process, talk through how we think about integrating that
into fundamentals, we think about risks,
we think about opportunities for these companies,
and how ultimately that does help drive the stock selection
and the position sizing.
So on this first slide, you can see Texas Instruments.
So firstly, we think about the ESG drivers, as we all know.
And one of those, of course, within the framework
of decarbonization is the penetration
of electric vehicles going forward.
So our auto team, our semiconductors team,
our basic materials team all work incredibly closely
to come up with these forecasts, and of course, to understand
what the impact of the very necessary push towards EVs
is on the businesses that are exposed.
Texas Instruments sells semiconductors.
They sell semiconductors into electric vehicles
as a growing market.
And so when we think about the growth
that they're organically going to see,
we think that it's very compelling.
And ultimately, we want to understand the driver, this ESG
driver, and how that's driving revenues for this company.
But of course, there's so much more
to thinking about ESG integration
than just what it's going to do to the top line.
You have to think about risks.
You have to think about costs.
You have to think about appropriate mitigation
of emissions.
And so when we think about what Texas Instruments does
with their suppliers, with their supply chain, when we think
about how they monitor the emissions of their supply chain
and how ultimately they drive change,
that too is where we're very impressed with what
the company does.
They have very tangible targets for short-term emissions
reductions.
Rather than lofty 2050 targets that no one's holding them to,
they have 2025 and 2030 targets.
They engage with their suppliers.
They're looking to really give much better disclosure
around scope 3 emissions, which for any industrial or
semiconductor company, is going to be
a very important part of it.
And we feel it's necessary to understand these to understand
what might happen to the cost base going forward,
to understand the risks if they really
start to see costs imposed on them by governments
around the world.
So again, it's about incorporating all of this
and embedding that, then, in our view of the fundamentals.
So I talked about the revenue side
with electric vehicle growth.
But then, of course, you bring in the costs
and you think about the earnings growth.
And you can see the third point here.
Texas Instruments, we do believe,
will outgrow many of their peers when you
look at the earnings growth.
Now, growth is one part of it.
Valuation, as you heard from Helgi and James,
is another critical part.
And this is where we take those numbers,
we take the integration, and we put it
into our valuation framework.
And you can see here that for us to own Texas Instruments,
we of course want it to look attractively valued
versus its peers.
On the next slide, we're talking about Prologis.
So Prologis is a REIT.
It's a distribution center REIT.
And you think about the growth they've
seen over the past 5, 10, 15, 20 years from e-commerce.
They've become absolutely critical to every commerce
platform in the United States.
That's come with its challenges, though.
Actually having skilled labor to run these distribution centers
when you've seen such fantastic growth in the industry
has become a bit of a bottleneck for them.
And so what they've done is, we think, both a fantastic ESG
initiative, but also something that
really improves the resiliency of their business.
So they've gone out and they've trained through their community
workforce initiative.
25,000 people are in the process of that up till 2025.
These distribution centers are offered often in communities
where actually there aren't that many other sources
of employment.
But it is a skilled job.
So they go and they train these people, often straight
out of high school.
And at the end of the day, they've
given them a valuable skill and they've given them employment,
too.
Wonderful community initiative.
But equally, it solves a labor shortage problem
which, if they hadn't had the foresight to think about how
to plan for this, could have really
caused issues with their growth going forwards.
You look, too, at the business fundamentals of this company.
One of the key advantages they have
is being in locations where they are not
too far from major cities.
If you're Amazon and you're trying to do one-day delivery,
but your distribution center is 100 miles away,
that's not particularly helpful.
If you can locate close to cities, that is very helpful.
And Prologis has some of the best real estate
of any distribution center REITs in the US.
Down at the bottom here, you can see what this gives you.
It gives you a first quintile valuation signal, so very
attractive; some great earnings growth,
10% per year over the next five years;
a 4% normalized dividend yield; and a 15% total return,
we believe, for the stock over the coming few years.
Now let's turn to the performance on the next slide.
You heard from Helgi that we've been
very pleased with the performance
in multiple environments, whether it's
growth versus value.
And I think this really puts some numbers around it.
So you can see that in 2020, which was,
of course, a hugely favorable growth environment,
the trust did very well.
In 2022, where the opposite, quite frankly, were very true,
the trust did very well.
And we're looking for consistency.
We're not looking for wild swings
in performance based on factor performance
because we don't believe that's where our insight is.
You heard talk about 80% stock-specific risk.
The way you do that is by being global, by being core,
and by understanding exactly where you have insight.
And I think that underpins everything
that we've seen in the performance
over the past few years.
And for me, it gives me the confidence
in saying that this is repeatable.
Of course, the questions you should be asking us,
and the board should be asking us
as your investment managers, are,
what are the key building blocks that allow you to do this,
and has anything changed?
So when we look at the 80-plus senior research
analysts we have around the world,
we look at the quality of the people we're able to hire,
we look at the very low turnover in these teams,
and we look at, as Helgi talked about, too,
the fantastic data analytics that we have within JP Morgan,
I have to say, I feel very, very good about the future
and how repeatable this performance is.
And maybe the final slide from me is just to talk about some
of the things that have worked over the past year that
have helped this fantastic performance.
So Meta, you can see on the top left there,
has been the single best stock for us.
Now, if you'd spoken to all three of us a year ago,
I think you'd have found us quite frustrated with the name.
They had been spending more, and more, and more
on Reality Labs, which is their Metaverse product.
And I think you certainly will find some healthy skepticism
amongst us here about whether that will ever
be a really viable product.
What we really needed them to stop doing
was spending more money on this.
We wanted them to pull in CapEx, pull in OpEx,
and just allow the core business to truly showcase
its true fundamentals, and that's what they've done.
We've seen fantastic engagement across their platform of apps.
We've seen monetization really improve.
We've seen them considerably outgrow Google, for example,
within digital advertising.
And because they did pull back on the spending
on their Metaverse division, we've
seen the stock work incredibly well, up
over 100% over the past year to the end of September.
Uber, too, another great performer, one where we have,
long-term, a very positive view on the profitability of this.
It's a marketplace business, at the end of the day.
It operates particularly in the US in a duopoly,
and they've been able to supplement the rider business
with a food delivery business, where actually, they've
realized some very significant synergies.
One in particular, if you think about the labor shortages
that we all saw occur in the pandemic.
In the US, depending on the state you're operating in,
it can take anywhere from two weeks to a month
to get a background check back to be allowed
to drive passengers around.
To deliver food, you don't need the background check.
So when Uber's competing with Lyft for a very limited supply
of drivers, if you can onboard somebody straight away
and they can start earning revenue straight away,
that's a very compelling proposition.
And we saw that they benefited from that.
So I think we truly appreciate the structural characteristics
of their business and the opportunity they have ahead
of them.
You can see the two of those stocks contributed
on the bottom to media being the very best sector that we've
had.
But I would point more, honestly,
to diversification of the excess performance that we've seen.
It's not just one sector.
This is not a technology portfolio.
This is a diversified portfolio where
we're focused on where we have the insights
within each sector.
And to the point about it not being a technology portfolio,
you can see that, initially, we didn't own NVIDIA.
And that has been painful.
That cost us 61 basis points of performance over the past year.
And I think this speaks to, as investors,
you have to be ready to change your mind.
We certainly did not appreciate the advantage
that NVIDIA had six, nine months ago in a market that
was growing, quite frankly, much more rapidly than we realized.
When they reported the truly fantastic results in May,
and they've continued to report great results since, we took
a step back and we said, OK, we need
to assess the fundamentals.
We need to look at what's changed
and we need to make a dispassionate decision
about whether, even after a fantastic rally for the stock,
we should be buying it.
The answer, in short, was, yes, we absolutely should.
NVIDIA is dominant within the AI space.
It's a market which is seeing enormous spend right now.
And more importantly, it's a market
where you're seeing real returns on investment
for companies that are spending.
We've done a number of meetings over the past few weeks
with companies like Intuit, who are benefiting
from the wonderful data source that they have,
and they're using AI to drive much better adoption
of their products.
This is why we believe in NVIDIA.
This is not the dot com bubble, where
companies' valuations were shooting
through the roof with absolutely no evidence.
There is evidence right now.
And so we changed our mind on NVIDIA.
We bought the stock, even after a rally.
And that's actually, over the past six months,
been incredibly beneficial.
Maybe one final stock to talk about here
is NextEra Energy, which again, has detracted from returns.
The significant run up in bond yields
that we've seen over the past few months
has, of course, hit those sectors
which are considered bond proxies in a very major way.
So utilities has been the worst-performing sector
over the past three months by far.
NextEra is a renewable play.
It also has a regulated utility, and it does have some leverage.
So the market has been asking itself,
in a higher cost of capital world,
what does that mean for growth and what does that
mean for interest expense?
In short, we don't believe that renewables is dead.
You heard me talk about the ESG drive.
But actually, it's the cost advantage and the stability
that some renewables can bring, particularly
solar and onshore wind, which are
very helpful for supplementing the generation on the grid.
NextEra is the largest renewable producer in the US.
They have significant cost advantages
as a result. In a higher cost of capital world, actually,
we think that they are likely, by far,
to be the one that succeeds versus everybody else.
They just had a record quarter where
they had record additions to the renewables backlog.
And so we think rumors of renewables' demise
are greatly exaggerated.
As a result, we do not worry about--
even when we model a higher cost of debt,
we do not worry about this business.
And so we're perfectly comfortable living
through the volatility but continuing to own the name.
So I think with that, we'll pause.
And we're delighted to take your questions.