It has been a difficult year for shareholders in investment trust JPMorgan Mid Cap. The shares took a hammering in the eye of the pandemic because of the fund’s focus on the UK economy and its exposure to sectors such as travel that were badly affected by Covid-19.
But manager Georgina Brittain is hopeful that better times are around the corner – provided the coronavirus does not return with a vengeance, the economy stabilises rather than going into meltdown, and a Brexit deal is struck by the end of the year.
‘Where we go from here is the million dollar question,’ Brittain says. ‘But if you stand back a little, I am confident the companies the trust owns will bring in future profits and generate lots of cash, in turn boosting their share prices.’
The trust, capitalised at just over £200million, is UK-focused and invests primarily in companies in the FTSE 250 Index. These are the businesses that in terms of market value are ranked between 101 and 350 on the London Stock Exchange.
Before the start of the pandemic, Brittain was in buoyant mood.
‘With a bigger than expected Tory victory in the December General Election, we thought it was excellent news for a trust investing in UK mid cap stocks,’ says Brittain. ‘We assumed the Brexit issue that had been hanging over the UK stock market since 2016 would be removed and the British economy would move forward.
‘The trust borrowed money to increase its exposure to the market and we thought ‘off we go’. With the benefit of hindsight, it was not clever timing.’
The performance figures speak for themselves. Over the past six months, the trust has recorded a loss of 26 per cent – more than twice that of the FTSE All-Share Index. Although the trust’s share price has improved in recent months, it is still way off its level at the start of the year.
‘The trust had a horrible February and March,’ says Brittain. ‘From April, it has bounced back.’
Brittain has worked hard to ensure the trust is in a position to move forward on the basis of a recovery in the UK economy. Borrowings have been reduced with cash generated from the disposal of some companies that Brittain thought would struggle through lockdown – the likes of Trainline, Tullow Oil and SSP, which runs catering and retail units at airports and stations.
New positions have been taken in construction company Morgan Sindall – ‘ludicrously cheap’ – retailer Kingfisher (the owner of B&Q and Screwfix) and the gold miner Centamin.
Some companies such as airline operators Wizz Air and Dart (the owner of Jet2) have been held on to despite being severely affected by travel bans – indeed, Brittain has been adding to the holdings and is confident they will pull through.
‘Yes, we’re more confident than pessimistic,’ she says. ‘We’re not wedded to a Vshaped recovery, but we do believe the stocks we hold in the portfolio will come good.’
The trust has 62 stocks and can continue to hold firms that go on to join the FTSE 100 Index. Current FTSE 100- listed holdings include Kingfisher, industrial rental equipment specialist Ashtead, JD Sports and cyber-security giant Avast.
The trust’s annual charges are just less than 0.9 per cent and the annual dividend is a little more than 3 per cent. The final dividend for the financial year ending June 30 will be announced next month. If the trust is going to improve upon its six consecutive years of annual dividend increases, it will have to dip into its income reserves.
Stock market identification code: 0235761