Growth isn’t equal growth and investors should be careful about which kind they add to their portfolios, says Tim Woodhouse, co-manager of the £1.8bn JPMorgan Global Growth and Income trust.
The five FE fundinfo Crown-rated portfolio uses a combination of growth and income while steering away from the high-growth companies, often found in the US tech space, that have dominated the market for the decade and seemed to make a comeback this year, after being crushed in 2022.
“In 2022 we saw the pitfalls of a pure growth portfolio,” he said. “With no concept of valuation whatsoever, it just turns into an interest rate bet and we're not looking to make such factor calls as regimes can change very quickly.”
Last year bore testament to this, as investors were taken by surprise by a stickier inflation and the start of monetary tightening – which surprised Woodhouse too. Interviewed by Trustnet in 2020, he said that beyond 2022 it was “very hard to see what the sources of inflation would be that would lead [central banks] to have to raise rates”.
Today, he’s not surprised that he got it wrong.
“The Fed has thousands of economists to try and predict these things and they got it wrong too. Our strength is not macro forecasting, but certainly more identifying interesting stocks,” he said.
“By the end of 2021 and 2022, there was an egregious bubble in so many smaller, high-growth companies and the good performance that they had delivered and their valuation framework gave us a very clear signal to avoid these type of names.”
Despite avoiding high-growth companies, JPMorgan Global Growth and Income is still overweight the US (today at 69.8% of the portfolio) even if stresses in the country’s banking sector have been worrying investors and increasing the perceived likelihood of a tougher recession than elsewhere.
“The US is where we find the stocks-specific insights that we think will dominate, as well as very consistent trends that will drive growth in companies which aren’t trading on 20 times sales and aren’t purely speculative,” said the manager.
“Also, particularly if we are going into a recession, it’s in the US that we find a lot of asset-light business models, which we think are going to be more resilient. But recessions tend to be global in nature and we don’t think one will hit any one region worse than another right now.”
Today, the biggest position within the trust is Amazon, as the scale of its cloud business makes it a “compelling” long-term growth opportunity despite some cyclical slowdowns.
Another example of a long-term growth trend is the semiconductors space, where the manager is particularly excited about the prospects of NXP Semiconductors.
“NXP Semiconductor is one of our largest names. We like their exposure to the automotive industry, as semiconductor content within cars is rising and will keep rising as we move towards autonomous vehicles – for which NXP is very well positioned,” said Woodhouse.
Through exposure to these trends, JPMorgan Global Growth and Income has achieved top-quartile returns in its IT Global Equity Income sector over three, five and 10 years. It has slipped into the second quartile over six months.
Performance of fund over 3yrs and 6 months against sector and index
Source: FE Analytics
Woodhouse said he’s particularly proud of the trust’s “ very consistent performance regardless of whether growth as a factor was outperforming in the market or regardless of whether value was outperforming”.
“We want to be a trust where every month you invest, over time, you'll consistently make a small excess return,” he concluded.