Double digit returns for JPMorgan European Fledgeling Investment Trust

A bottom-up investment process and a low inflationary environment have helped to drive performance for the award-winning JPMorgan European Fledgeling Investment Trust run by AA Citywire-rated co-managers Jim Campbell and Francesco Conte. The Trust has outperformed its benchmark, the HSBC Smaller European Companies (ex UK) index (Sterling), over 1, 3, 5, and 10 years.

“European smaller companies, (€4bn market cap or less) have delivered and are expected to continue to deliver earnings growth which is faster than the overall market.” says Jim Campbell, co-manager of the £471m JPM European Fledgeling Investment Trust. “Although smaller companies are no longer cheap relative to blue chips, their earnings still have strong momentum and good value can be found,” he continued.

During the year to 31 March 2007, the Trust benefited from a focus on value cyclical companies. JM, the Swedish housebuilder, provided strong returns with a share price return of 95%. An overweight position in KCI Konecranes, a Finnish crane supplier, was also one of the biggest positive contributors to the Trust’s performance, as the company’s third-quarter profits doubled due to growing global trade.

The number of holdings within the portfolio remained relatively concentrated, ending the year at 48 compared to 53 at the beginning of the year. Francesco Conte, co-manager of JPM European Fledgeling Investment Trust said “We decided to reduce our sector holdings in early cycle performers such as general financials, non-life insurance and construction. For example we sold our positions in insurers Baloise in Switzerland, Scor in France and FBD in Ireland as competitive pressures increased and the benefits of cost savings receded. The large overweight position in construction was reduced with the disposal of Nordic developers Veidekke and YIT as housing demand slowed in Norway and Finland respectively.”

With a price to book premium of some 15 per cent, smaller companies in Europe now command their highest valuation relative to blue-chips over the last 20 years. “A contraction in the supply of equities has been a key factor in driving performance in the whole European smaller companies market especially during 2005 and 2006. This was created by a surge in companies buying back their own shares, and by a boom in private equity buy-outs of listed companies, the consequence of which has dwarfed the volume of new issues coming to the market. Smaller companies have been impacted most by this trend and many companies which would normally have sought a stockmarket listing have instead been sold to private equity investors.” concluded Campbell.