WEBVTT 00:00:00.000 --> 00:00:03.500 align:middle line:90% [MUSIC PLAYING] 00:00:03.500 --> 00:00:20.980 align:middle line:90% 00:00:20.980 --> 00:00:21.480 align:middle line:90% Hello. 00:00:21.480 --> 00:00:23.280 align:middle line:90% I'm Alexander Fitzalan Howard. 00:00:23.280 --> 00:00:26.050 align:middle line:84% I've been at JP Morgan since 1986. 00:00:26.050 --> 00:00:29.430 align:middle line:84% I've been running European equity portfolios since 1999, 00:00:29.430 --> 00:00:32.040 align:middle line:84% and I've been involved with the JP Morgan European Growth 00:00:32.040 --> 00:00:34.470 align:middle line:84% and Income Trust since the early 2000S. 00:00:34.470 --> 00:00:36.300 align:middle line:90% Hi, my name is Zenah Shuhaiber. 00:00:36.300 --> 00:00:39.900 align:middle line:84% I joined JP Morgan in 2005 and joined the investment teams 00:00:39.900 --> 00:00:43.260 align:middle line:84% in 2007, managing multiregional portfolios. 00:00:43.260 --> 00:00:45.480 align:middle line:84% I joined this investment trust co-managing 00:00:45.480 --> 00:00:52.950 align:middle line:90% with Alexander in 2020. 00:00:52.950 --> 00:00:54.990 align:middle line:84% The JP Morgan European Growth and Income Trust 00:00:54.990 --> 00:00:57.150 align:middle line:84% goes all the way back to 1929, when 00:00:57.150 --> 00:00:59.670 align:middle line:84% it started life as the London and Holyrood Trust. 00:00:59.670 --> 00:01:03.210 align:middle line:84% It's been invested in European equities since 1988. 00:01:03.210 --> 00:01:07.860 align:middle line:84% In 2006, it split into two separate portfolios, an income 00:01:07.860 --> 00:01:12.300 align:middle line:84% share portfolio and a growth or core share portfolio. 00:01:12.300 --> 00:01:15.360 align:middle line:84% But the interesting thing is that in February last year, 00:01:15.360 --> 00:01:18.090 align:middle line:90% the two portfolios have merged. 00:01:18.090 --> 00:01:21.810 align:middle line:84% Going forward, it will be run on the same basis as the growth 00:01:21.810 --> 00:01:24.630 align:middle line:90% or core leg, but-- 00:01:24.630 --> 00:01:27.660 align:middle line:84% and this is the exciting bit-- the board have decided 00:01:27.660 --> 00:01:30.640 align:middle line:90% to pay a 4% annual dividend. 00:01:30.640 --> 00:01:34.920 align:middle line:84% So this means that we can use the investment trust structure 00:01:34.920 --> 00:01:39.270 align:middle line:84% to pay that dividend without compromising the investment 00:01:39.270 --> 00:01:41.580 align:middle line:90% strategy of the core portfolio. 00:01:41.580 --> 00:01:47.720 align:middle line:90% 00:01:47.720 --> 00:01:50.810 align:middle line:84% In order to do this, we want to invest 00:01:50.810 --> 00:01:53.600 align:middle line:84% in a core balanced portfolio that 00:01:53.600 --> 00:01:57.350 align:middle line:84% can generate incremental returns through different market cycles 00:01:57.350 --> 00:01:59.450 align:middle line:84% and in different market conditions. 00:01:59.450 --> 00:02:02.360 align:middle line:84% To do this, we're looking for companies 00:02:02.360 --> 00:02:05.780 align:middle line:84% that are high quality, are cheaper than the market, 00:02:05.780 --> 00:02:08.660 align:middle line:84% and have better operational momentum than the market. 00:02:08.660 --> 00:02:10.610 align:middle line:84% When we're looking at a company, we're 00:02:10.610 --> 00:02:12.260 align:middle line:90% looking for various attributes. 00:02:12.260 --> 00:02:15.590 align:middle line:84% First of all, we want to invest in quality businesses. 00:02:15.590 --> 00:02:17.450 align:middle line:84% And for us, that means companies that 00:02:17.450 --> 00:02:20.780 align:middle line:84% generate a good return on invested capital, 00:02:20.780 --> 00:02:23.930 align:middle line:84% companies where earnings per share 00:02:23.930 --> 00:02:26.930 align:middle line:84% translates into free cash flow, and companies 00:02:26.930 --> 00:02:29.510 align:middle line:84% where we think the management are making sensible capital 00:02:29.510 --> 00:02:31.430 align:middle line:90% allocation decisions. 00:02:31.430 --> 00:02:33.950 align:middle line:84% In terms of valuation, it's important for us 00:02:33.950 --> 00:02:36.710 align:middle line:84% to work out whether the market has already 00:02:36.710 --> 00:02:39.410 align:middle line:84% discounted those prospects or whether there's an opportunity 00:02:39.410 --> 00:02:42.020 align:middle line:90% still to make money. 00:02:42.020 --> 00:02:44.630 align:middle line:84% And lastly, in terms of momentum, 00:02:44.630 --> 00:02:47.420 align:middle line:84% it's really important that the company's operational momentum 00:02:47.420 --> 00:02:48.380 align:middle line:90% is improving. 00:02:48.380 --> 00:02:50.480 align:middle line:84% And one way of looking at that is 00:02:50.480 --> 00:02:53.210 align:middle line:84% to see whether earnings per share estimates 00:02:53.210 --> 00:02:55.580 align:middle line:90% are rising or being cut back. 00:02:55.580 --> 00:02:57.890 align:middle line:84% Not all companies that we invest in 00:02:57.890 --> 00:02:59.870 align:middle line:90% will have all those attributes. 00:02:59.870 --> 00:03:03.140 align:middle line:84% But overall, the portfolio as a whole will always be cheaper 00:03:03.140 --> 00:03:05.870 align:middle line:84% than the market, will always have better quality 00:03:05.870 --> 00:03:09.080 align:middle line:84% than the market, and better momentum characteristics. 00:03:09.080 --> 00:03:13.430 align:middle line:84% I think it's worth saying, also, because we are overweight 00:03:13.430 --> 00:03:16.730 align:middle line:84% both value and growth within the portfolio, that 00:03:16.730 --> 00:03:18.560 align:middle line:84% has been really helpful to performance 00:03:18.560 --> 00:03:19.625 align:middle line:90% over the last few years. 00:03:19.625 --> 00:03:25.170 align:middle line:90% 00:03:25.170 --> 00:03:28.160 align:middle line:84% We think the European equities is a very important asset class 00:03:28.160 --> 00:03:30.170 align:middle line:90% and one to not be forgotten. 00:03:30.170 --> 00:03:32.390 align:middle line:84% The market definitely corrected last year, 00:03:32.390 --> 00:03:36.110 align:middle line:84% with European markets down around 9% in Sterling terms, 00:03:36.110 --> 00:03:39.200 align:middle line:84% amidst a lot of bad news that happened within Europe. 00:03:39.200 --> 00:03:41.780 align:middle line:84% But we need to remember a couple of key points 00:03:41.780 --> 00:03:45.050 align:middle line:84% in terms of European companies, the first one 00:03:45.050 --> 00:03:47.660 align:middle line:84% being that they're very global in nature. 00:03:47.660 --> 00:03:50.310 align:middle line:84% When we look at our portfolio, for instance, 00:03:50.310 --> 00:03:52.550 align:middle line:84% only around a third of the revenue 00:03:52.550 --> 00:03:55.680 align:middle line:84% streams actually come from continental Europe, 00:03:55.680 --> 00:03:58.430 align:middle line:84% meaning that the companies within the European universe 00:03:58.430 --> 00:04:00.380 align:middle line:84% are far more linked towards what's 00:04:00.380 --> 00:04:03.500 align:middle line:84% happening in the global economy rather than just simply 00:04:03.500 --> 00:04:04.980 align:middle line:90% continental Europe. 00:04:04.980 --> 00:04:06.890 align:middle line:84% The second one being how will they 00:04:06.890 --> 00:04:10.280 align:middle line:84% play into longer-term themes and really exciting themes 00:04:10.280 --> 00:04:11.930 align:middle line:84% that we can all think of that are 00:04:11.930 --> 00:04:14.220 align:middle line:84% leading the future in the years to come. 00:04:14.220 --> 00:04:16.519 align:middle line:84% So for instance, the energy transition, 00:04:16.519 --> 00:04:19.010 align:middle line:84% or when we're thinking about the luxury consumer, 00:04:19.010 --> 00:04:21.589 align:middle line:90% or even aging demographics. 00:04:21.589 --> 00:04:25.040 align:middle line:84% So while we don't think that all the bad news is necessarily 00:04:25.040 --> 00:04:28.580 align:middle line:84% out when we think about the macro situation within Europe, 00:04:28.580 --> 00:04:30.350 align:middle line:84% we definitely think that the right time 00:04:30.350 --> 00:04:33.650 align:middle line:84% to start looking at Europe is before that because markets 00:04:33.650 --> 00:04:36.260 align:middle line:84% tend to bottom well before the bad news is out. 00:04:36.260 --> 00:04:55.380 align:middle line:90% 00:04:55.380 --> 00:04:57.330 align:middle line:84% We think of three key features that 00:04:57.330 --> 00:05:00.360 align:middle line:84% distinguish JP Morgan's European Growth and Income 00:05:00.360 --> 00:05:04.020 align:middle line:84% Trust, the first one being the investment process. 00:05:04.020 --> 00:05:06.030 align:middle line:84% It's a very disciplined investment process 00:05:06.030 --> 00:05:08.340 align:middle line:90% that goes back many, many years. 00:05:08.340 --> 00:05:11.490 align:middle line:84% When we think about how we achieve the returns that we 00:05:11.490 --> 00:05:16.020 align:middle line:84% achieve, we really rest on two key pillars within JP Morgan 00:05:16.020 --> 00:05:18.120 align:middle line:84% and really utilize the full breadth 00:05:18.120 --> 00:05:20.370 align:middle line:84% of what we have within our quantitative research 00:05:20.370 --> 00:05:23.100 align:middle line:84% capabilities as well as our fundamental research 00:05:23.100 --> 00:05:26.640 align:middle line:84% capabilities, and by doing that, deliver a core portfolio 00:05:26.640 --> 00:05:29.910 align:middle line:84% that is diversified by both stock as well as style. 00:05:29.910 --> 00:05:32.370 align:middle line:84% The second one being the track record. 00:05:32.370 --> 00:05:34.770 align:middle line:84% The track record is very long-term. 00:05:34.770 --> 00:05:37.510 align:middle line:84% We have outperformed in the most recent years, 00:05:37.510 --> 00:05:39.010 align:middle line:90% which is great news. 00:05:39.010 --> 00:05:41.310 align:middle line:84% But even when we think about the long-term performance 00:05:41.310 --> 00:05:44.520 align:middle line:84% of the investment trust, we have also demonstrated our ability 00:05:44.520 --> 00:05:47.820 align:middle line:84% to outperform in a variety of different market environments, 00:05:47.820 --> 00:05:50.970 align:middle line:84% be it value markets, growth markets, or even 00:05:50.970 --> 00:05:52.450 align:middle line:90% up-and-down markets. 00:05:52.450 --> 00:05:54.990 align:middle line:84% And then, finally, the third one is the dividend. 00:05:54.990 --> 00:05:59.190 align:middle line:84% This makes it a very resilient and reliable source of income 00:05:59.190 --> 00:06:00.720 align:middle line:90% for our key investors. 00:06:00.720 --> 00:06:06.010 align:middle line:90% 00:06:06.010 --> 00:06:07.930 align:middle line:84% When we look at stock selection, we really 00:06:07.930 --> 00:06:11.770 align:middle line:84% think of asking ourselves four key questions, the first one 00:06:11.770 --> 00:06:13.820 align:middle line:90% being, is it a good business? 00:06:13.820 --> 00:06:15.520 align:middle line:84% And by this, what we're thinking of 00:06:15.520 --> 00:06:18.100 align:middle line:84% is thinking about things like profitability. 00:06:18.100 --> 00:06:21.710 align:middle line:84% We look at measures like return on invested capital. 00:06:21.710 --> 00:06:24.910 align:middle line:84% We also think about how variable those earnings and cash 00:06:24.910 --> 00:06:28.510 align:middle line:84% flows are over time and whether the management team are making 00:06:28.510 --> 00:06:31.990 align:middle line:84% good decisions in terms of capital allocation for things 00:06:31.990 --> 00:06:35.110 align:middle line:84% like mergers and acquisitions or further CapEx. 00:06:35.110 --> 00:06:37.900 align:middle line:84% The second question we ask is, is the company 00:06:37.900 --> 00:06:39.790 align:middle line:90% attractively valued? 00:06:39.790 --> 00:06:41.650 align:middle line:84% Valuation is incredibly important 00:06:41.650 --> 00:06:44.240 align:middle line:84% and has been so for many, many years. 00:06:44.240 --> 00:06:45.820 align:middle line:84% It had been a little bit forgotten 00:06:45.820 --> 00:06:48.370 align:middle line:84% in the last couple of years or the last decade 00:06:48.370 --> 00:06:51.730 align:middle line:84% or so, as investors focused a lot more on growth. 00:06:51.730 --> 00:06:54.280 align:middle line:84% But for us, maintaining that discipline 00:06:54.280 --> 00:06:56.140 align:middle line:84% has been very helpful in particular 00:06:56.140 --> 00:07:00.310 align:middle line:84% in 2022, as we think that focusing on measures 00:07:00.310 --> 00:07:03.160 align:middle line:84% such as price to earnings and free cash flow yield 00:07:03.160 --> 00:07:05.350 align:middle line:84% is really powerful over the longer term. 00:07:05.350 --> 00:07:07.210 align:middle line:84% The third question we ask ourself 00:07:07.210 --> 00:07:09.790 align:middle line:90% is, is the momentum improving? 00:07:09.790 --> 00:07:12.760 align:middle line:84% And by this, we're looking at both operational momentum 00:07:12.760 --> 00:07:15.550 align:middle line:84% as well as just simply the share price momentum. 00:07:15.550 --> 00:07:17.770 align:middle line:84% We think that companies that are doing well 00:07:17.770 --> 00:07:20.110 align:middle line:84% will continue to do well in the future, 00:07:20.110 --> 00:07:23.510 align:middle line:84% and the converse of that is also true. 00:07:23.510 --> 00:07:25.150 align:middle line:84% And then, finally, the fourth question 00:07:25.150 --> 00:07:27.740 align:middle line:90% is, is the business sustainable? 00:07:27.740 --> 00:07:31.330 align:middle line:84% Now, this has been a really key issue in the last few years, 00:07:31.330 --> 00:07:34.060 align:middle line:84% and it's definitely part of our investment process. 00:07:34.060 --> 00:07:36.910 align:middle line:84% And we look at it, again, as we do for the other three 00:07:36.910 --> 00:07:40.120 align:middle line:84% questions, in both thinking about quantitative approaches 00:07:40.120 --> 00:07:42.400 align:middle line:84% and qualitative approaches in terms 00:07:42.400 --> 00:07:45.610 align:middle line:84% of assessing whether a business is sustainable. 00:07:45.610 --> 00:07:48.250 align:middle line:84% And really what we're trying to ascertain here is, is this 00:07:48.250 --> 00:07:49.420 align:middle line:90% an opportunity? 00:07:49.420 --> 00:07:50.690 align:middle line:90% Is this a risk? 00:07:50.690 --> 00:07:52.570 align:middle line:84% Or is this something that we can consider 00:07:52.570 --> 00:07:55.030 align:middle line:84% engaging with company management in terms 00:07:55.030 --> 00:07:57.190 align:middle line:84% of assessing whether this is a good investment 00:07:57.190 --> 00:07:58.390 align:middle line:90% opportunity for us? 00:07:58.390 --> 00:08:03.670 align:middle line:90% 00:08:03.670 --> 00:08:05.770 align:middle line:84% When we look at our longer-term track record, 00:08:05.770 --> 00:08:08.680 align:middle line:84% we can see that we have outperformed in both value 00:08:08.680 --> 00:08:10.210 align:middle line:90% and growth markets. 00:08:10.210 --> 00:08:13.960 align:middle line:84% We have also outperformed in both up and down markets. 00:08:13.960 --> 00:08:16.360 align:middle line:84% In terms of thinking about the actual dividend 00:08:16.360 --> 00:08:18.850 align:middle line:84% that our investors receive, that dividend yield 00:08:18.850 --> 00:08:21.400 align:middle line:84% is set at the very beginning of the fiscal year, 00:08:21.400 --> 00:08:25.870 align:middle line:84% meaning that is a very reliable and known amount of income 00:08:25.870 --> 00:08:27.250 align:middle line:90% for the course of the year. 00:08:27.250 --> 00:08:31.060 align:middle line:84% When we think about how do we deal with macro issues 00:08:31.060 --> 00:08:33.440 align:middle line:84% from a portfolio manager perspective, 00:08:33.440 --> 00:08:36.909 align:middle line:84% we actually try to not get too bogged down with everything. 00:08:36.909 --> 00:08:39.980 align:middle line:84% As fund managers, we need to know what we are good at-- 00:08:39.980 --> 00:08:42.159 align:middle line:84% for instance, the stock selection piece-- 00:08:42.159 --> 00:08:44.623 align:middle line:84% versus the many different kinds of risks 00:08:44.623 --> 00:08:46.540 align:middle line:84% that we might experience throughout the course 00:08:46.540 --> 00:08:47.200 align:middle line:90% of the year. 00:08:47.200 --> 00:09:07.820 align:middle line:90% 00:09:07.820 --> 00:09:11.300 align:middle line:84% We are still quite defensively positioned, but much less so 00:09:11.300 --> 00:09:13.790 align:middle line:90% than, say, six months ago. 00:09:13.790 --> 00:09:16.490 align:middle line:84% Last year, many of the defensive companies 00:09:16.490 --> 00:09:18.470 align:middle line:84% within the market-- and I'm thinking 00:09:18.470 --> 00:09:20.390 align:middle line:84% the pharmaceutical sector, for example, 00:09:20.390 --> 00:09:24.060 align:middle line:84% or consumer staples companies, food and beverage companies, 00:09:24.060 --> 00:09:26.370 align:middle line:84% that sort of thing-- performed really well. 00:09:26.370 --> 00:09:29.870 align:middle line:84% But as a result, many of them are now quite expensive. 00:09:29.870 --> 00:09:33.710 align:middle line:84% In contrast, on the cyclical side, a lot of those companies 00:09:33.710 --> 00:09:37.430 align:middle line:84% did not perform so well and have really become quite cheap. 00:09:37.430 --> 00:09:39.990 align:middle line:84% We've started to add some money to that area, 00:09:39.990 --> 00:09:41.960 align:middle line:84% particularly where earnings have held 00:09:41.960 --> 00:09:44.180 align:middle line:90% up well on the cyclical side. 00:09:44.180 --> 00:09:47.480 align:middle line:84% One example is the semiconductor space, 00:09:47.480 --> 00:09:52.220 align:middle line:84% where demand for semiconductors is growing exponentially, 00:09:52.220 --> 00:09:55.640 align:middle line:84% for example, through the growth in electric vehicles, which use 00:09:55.640 --> 00:09:57.650 align:middle line:90% many, many more semiconductors. 00:09:57.650 --> 00:10:00.650 align:middle line:84% So gradually, we're beginning to become 00:10:00.650 --> 00:10:04.130 align:middle line:84% a little bit more cyclical and a little bit less defensive. 00:10:04.130 --> 00:10:09.290 align:middle line:90% 00:10:09.290 --> 00:10:13.310 align:middle line:84% I think the combination of the correction in the market 00:10:13.310 --> 00:10:16.790 align:middle line:84% post-COVID and the big recovery in earnings 00:10:16.790 --> 00:10:19.280 align:middle line:84% since COVID means that the market is now 00:10:19.280 --> 00:10:22.340 align:middle line:90% trading on very low valuations. 00:10:22.340 --> 00:10:25.950 align:middle line:84% It's currently on just under 13 times this year's earnings, 00:10:25.950 --> 00:10:27.770 align:middle line:84% which, if you look back historically, 00:10:27.770 --> 00:10:30.260 align:middle line:90% is an attractive level. 00:10:30.260 --> 00:10:33.480 align:middle line:84% If you can pair it with the US market as well, 00:10:33.480 --> 00:10:35.690 align:middle line:84% you have to go back a long way before you 00:10:35.690 --> 00:10:39.290 align:middle line:84% can see the European equity market trading so cheaply. 00:10:39.290 --> 00:10:42.050 align:middle line:84% So yes, I think that investors ought 00:10:42.050 --> 00:10:43.790 align:middle line:84% to be looking at European equities again. 00:10:43.790 --> 00:10:49.520 align:middle line:90% 00:10:49.520 --> 00:10:51.740 align:middle line:84% The JP Morgan Growth and Income Trust 00:10:51.740 --> 00:10:54.590 align:middle line:84% is ESG integrated, which means that we 00:10:54.590 --> 00:10:58.500 align:middle line:84% consider ESG issues throughout the investment process. 00:10:58.500 --> 00:11:00.740 align:middle line:84% When we're looking at a stock, for instance, 00:11:00.740 --> 00:11:03.320 align:middle line:84% we're really thinking about incorporating 00:11:03.320 --> 00:11:06.350 align:middle line:84% sustainable investing into just as we 00:11:06.350 --> 00:11:08.760 align:middle line:84% do for any of the other metrics that we're looking at. 00:11:08.760 --> 00:11:11.990 align:middle line:84% And so we think about both quantitative metrics as well as 00:11:11.990 --> 00:11:15.200 align:middle line:84% fundamental metrics to look into what 00:11:15.200 --> 00:11:17.840 align:middle line:84% are these issues that these companies are facing. 00:11:17.840 --> 00:11:20.390 align:middle line:84% So an example of a quantitative metric 00:11:20.390 --> 00:11:22.910 align:middle line:84% could be something as simple as the carbon intensity 00:11:22.910 --> 00:11:24.380 align:middle line:90% of the business. 00:11:24.380 --> 00:11:27.260 align:middle line:84% On the fundamental side, our research analysts 00:11:27.260 --> 00:11:30.710 align:middle line:84% answer a 40 questionnaire and answer things 00:11:30.710 --> 00:11:33.830 align:middle line:84% such as what are the processes in place 00:11:33.830 --> 00:11:35.600 align:middle line:84% in terms of data security for a company, 00:11:35.600 --> 00:11:37.640 align:middle line:84% and are those processes effective. 00:11:37.640 --> 00:11:39.680 align:middle line:84% Or what is the credibility of the company 00:11:39.680 --> 00:11:42.660 align:middle line:84% management in terms of reducing their carbon emissions? 00:11:42.660 --> 00:11:45.630 align:middle line:84% So when we think about these questions, 00:11:45.630 --> 00:11:47.900 align:middle line:84% it's not necessarily a simple yes or no, we 00:11:47.900 --> 00:11:48.920 align:middle line:90% won't invest in them. 00:11:48.920 --> 00:11:51.290 align:middle line:84% It really is just that starting point 00:11:51.290 --> 00:11:54.020 align:middle line:84% in terms of how do we now engage with company 00:11:54.020 --> 00:11:56.480 align:middle line:84% management in terms of turning this around 00:11:56.480 --> 00:11:58.910 align:middle line:84% and really understanding these issues a lot more 00:11:58.910 --> 00:12:00.950 align:middle line:84% and helping us understand the investment 00:12:00.950 --> 00:12:03.430 align:middle line:90% case from then on forward. 00:12:03.430 --> 00:12:28.000 align:middle line:90%