TIDMJIGI
RNS Number : 0712T
JPMorgan Income & Growth IT PLC
30 September 2014
LONDON STOCK EXCHANGE ANNOUNCEMENT
JPMORGAN INCOME & GROWTH INVESTMENT TRUST PLC
UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS ENDED
31ST JULY 2014
Chairman's Statement
Your Company's year has started well. Despite patchy global
growth and rising geopolitical tensions, financial markets
continued to benefit from loose monetary policy. Our benchmark (the
FTSE 350 index) returned 4.6% in the six months to the end of July;
your shareholder funds delivered 5.0%.
It is pleasing that the Company continued to outperform markets.
The additional 0.4% outperformance over this period consolidates
the 19.0% additional value our managers and the gearing in the
portfolio have added versus the index since 2009.
The income shares as at 31st July 2014 were worth 106.86p (the
final capital entitlement of 103.4p plus retained income); the
capital shares were worth 6.23p. The Board has maintained the
dividend at 1.1p per quarter.
Our managers are always constrained by the need to deliver
sufficient income to cover the dividend. The task is increasingly
challenging as all assets have largely adjusted to the ultra-low
interest rates set by the Bank of England. Shareholders will
remember that we diversified the portfolio into a range of
international equities, high-yield bonds, convertibles and emerging
market sovereign debt in order to minimize the restrictions on the
UK equity portfolio (the largest single portion of the portfolio).
This has allowed us to meet the objectives of income shareholders,
whilst also capturing the upside of markets to the benefit of
capital shareholders.
During the first half, the diversified portfolio outperformed
the UK equity portion. This is the advantage of wider exposure: we
increase our chances of outperforming even when the UK equity
portfolio is slightly lagging the market, as it did in the first
half. UK equities remain the biggest single pool of assets, at 72%
of the total.
Having gearing in a rising market also boosts performance. Our
borrowing remained static at GBP20 million, representing a 27.5%
gearing ratio.
There have been two particular surprises from markets so far
this year. One is that bond yields have fallen, despite the
prospect of quantitative easing finally ending in the US and talk
of higher interest rates in the UK. This is normally a signal that
bond investors anticipate slowing economic activity and lower
inflation. The second is that volatility has fallen to historically
low levels. There have been more corporate earnings disappointments
than in previous years, there are tensions with Russia, monetary
policy could be at a turning point, and Europe remains on the verge
of deflation; yet markets have been serene throughout.
We do not have a better answer to this conundrum than other
bemused investors. What we do know is that neither phenomenon can
continue indefinitely, and certainly not at the same time. We are
braced for at least a spell of more difficult times ahead. We are
relying on our managers to use their extensive resources and
international expertise to help us navigate.
As always we welcome any questions or comments from
shareholders.
Karl Sternberg
Chairman
30th September 2014
Investment Manager's Report
Market Review
The six months to the end of July 2014 saw most major asset
classes deliver positive returns. Markets rose despite the
investment background of increased uncertainty about monetary
policy, divergence among the major central banks, growing
geopolitical concerns and some weaker-than-expected economic
data.
Global economic prospects diverged. In the UK, economic recovery
continued to beat expectations. In July, the first release of
second-quarter GDP showed that the UK economy had recovered all of
the output lost during the recession. The International Monetary
Fund revised upwards its estimate for UK growth in 2014, against
the backdrop of downward revisions for the global economy as a
whole. The FTSE 350 Index rose by 4.6% in the period under
review.
While the US economy slowed in the early months of 2014, with
weather-related issues causing an unexpected contraction in GDP,
the recovery appeared on track towards the end of the second
quarter, supporting the Fed's decision to wind down its USD85
billion programme of monthly asset purchases. US equities, as
measured by the S&P 500 Index, returned 9.4% over the six month
period, although this was diminished for sterling investors given
that the pound strengthened from US dollar 1.65 to 1.69.
In the eurozone, the outlook remained sluggish. Although
meaningful progress has been made in both economic and financial
sector reform, the ECB made it clear in June that it is prepared to
act further to support the eurozone economic recovery. At the time
of writing Draghi has announced further monetary easing. Inflation
remains worryingly low and unemployment remains at a very high
level relative to history. Despite this, the Eurostoxx 50 Index
increased by 6.1% over the same period in local currency.
In Japan, Prime Minister Abe's comprehensive programme of
economic reform aimed at ending decades of deflation, had a mixed
impact on the country's prospects. The implementation of a
consumption tax increase in April provided a much-needed boost to
prices, but also served to dampen consumer spending. While the Bank
of Japan continued to maintain its highly accommodative monetary
policy stance, Japanese equities delivered returns in the period of
6.8%.
In emerging markets, the dominant theme remained the prospect of
a hard economic landing in China, which the increasingly
accommodative stance of monetary authorities appeared to have
helped avert. Elsewhere, the electoral victory of Narendra Modi in
India provided a significant boost to domestic stocks over the six
months, amid high expectations of his government and its
market-friendly policy orientation. These themes helped Emerging
Market equities rise by 15.9%.
In fixed income, the yield on the US 10 year Treasury bond fell
slightly from 2.64% to 2.55%, having declined markedly in January.
High yield bonds returned 3.3% over the six months to the end of
July.
Portfolio Review
The Income & Growth portfolio is managed to the objective of
meeting the final capital entitlement of the Income shareholders,
as well as providing them with a regular income, and of providing
capital growth for the Capital shareholders. The portfolio's total
return of +5.8% outperformed the benchmark's return of +4.6% over
the six months to the end of July 2014. All strategies contributed
positively to absolute performance during the review period.
UK equity performance during this period was adversely impacted
by a sharp reversal of market sentiment during April 2014 towards
many mid-cap stocks that had previously performed very well. During
this one month, some of our more domestically-focused stocks such
as the housebuilder, Berkeley Group and the retailer, WHSmith, fell
despite having delivered strong results. However, the subsequent
three months were more encouraging and the UK equity portfolio
outperformed the benchmark over this period.
Our best performing stock for the six months was Provident
Financial, a financial services group which has consistently
delivered good results whilst also having an attractive valuation
with a premium dividend yield. Our established positions in the two
tobacco stocks, Imperial Tobacco and British American Tobacco, were
also strong performers as their attractive dividend yields
continued to appeal. Direct Line Insurance, the motor insurer that
we have held since its flotation was also a strong performer,
delivering better than expected results and good dividend growth.
By contrast, our holding in the industrials group, DS Smith, was
detrimental to performance as this stock suffered from some
earnings downgrades due to the appreciation of sterling. Our
holding in Foxtons was also detrimental due to its poor share price
performance during the mid-cap sell-off in April.
The JPM Europe Strategic Dividend Fund was a strong performer,
outperforming the Company's benchmark, the FTSE 350 Index. The
Multi Asset Income Fund which invests in globally diversified
income-producing securities also performed well and outperformed
the company's benchmark. The JPM Global High Yield Bond Fund
contributed positively over the six months.
During the six month review period the overall equity allocation
has remained at the top end of our expected range. The UK equity
market can benefit from the improving global growth backdrop given
its international nature, and yet still provide the Income &
Growth portfolio with an attractive income.
We have maintained the allocations to JPM Multi Asset Income
fund, JPM Europe Strategic Dividend Fund and JPM Global High Yield
Bond Fund around the same weight throughout the review period
reflecting our continued positive view on equities and corporate
bonds, driven by continued accommodative monetary policy,
reasonable valuations and stronger global growth. These positions
continue to help the portfolio maintain diversified sources of
income.
Outlook
The core themes we described in the Annual Report remain in
place. We believe that improving global growth led by the US,
accommodative monetary policy and reasonable (not cheap) valuations
are still supportive of global equities and corporate bonds. But we
have less conviction than twelve months ago. Our declining
conviction reflects a medium-term risk of rising volatility from
very low levels, uncertainty over the cyclical outlook outside the
US and elevated geopolitical risk.
James Elliot
Katy Thorneycroft
Sarah Emly
John Baker
Investment Managers
30th September 2014
Interim Management Report
The Company is required to make the following disclosures in its
half year report:
Principal Risks and Uncertainties
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