JPMorgan (NYSE:JPM) Euro Small Companies Trust Plc (LON:JESC) aims to generate long-term capital growth from a portfolio of European (ex-UK) small-cap equities. Despite a period of underperformance versus the Euromoney Smaller Europe ex-UK benchmark in 2016 due to conservative portfolio positioning, JESC’s longer-term performance record remains intact. It has outperformed the benchmark over three, five and 10 years. The managers believe that the European economic backdrop is favourable, political risk has been reduced and they are finding plenty of investment opportunities, across a range of industries, including companies that are adapting in a period of rapid technological change.
Investment strategy: Value, quality and momentum
There are three pillars to JESC’s investment process: value, quality and momentum. The trust’s three highly experienced managers use a proprietary multi-factor model to screen the 1,000 companies in the benchmark. Potential investments then undergo thorough fundamental research with the managers seeking companies that are attractively valued, high quality (which may be assessed in terms of market leadership, high returns or disciplined capital allocation), and which have positive operating momentum. The resulting portfolio of 50-75 stocks is diversified by sector and geography, and the managers are unconstrained by benchmark allocations. JESC may employ gearing or run a net cash position up to a maximum of 20%.
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