Trust news round-up: JPM American, European Opps, RTW, Partners PE
JPMorgan American (JAM )
Performance
The £1.9bn portfolio of US stocks suffered a 4.6% decline in its net asset value (NAV) in the first six months of the year, falling further than the S&P 500, which was down 3% over the same period. The trust’s shares had an even harder time, dropping 8.7%, which was reflected in a widening of the discount.
Bringing the figures to yesterday, JAM’s share price discount to NAV now stands a 3.1% versus a 2.2% annual average, according to Deutsche Numis data.
Both the large-cap and small-cap portions of the trust – the latter of which made up just 5.5% of exposure at the end of the period – underperformed, especially the smaller company holdings.
Within the large-caps, stocks in healthcare and consumer staples weighed on performance. Within healthcare, UnitedHealth was the worst performer as efforts to boost growth led to mispricing, resulting in a hike in healthcare costs, and pushing the management team to sell the position. Within consumer staples, cosmetics stalwart Estee Lauder has struggled with falling earnings, declining sales in key Asian markets, and management changes.
Fund manager changes
Jonathan Simon retired as manager responsible for value stocks in the company’s large-cap portfolio in March. The value sleeve is now run by Jack Caffrey and Graham Spence while the growth stocks are managed by Felise Agranoff and Eric Ghernati.
Portfolio changes
While not owning Tesla was a contributor to performance in the first half, the team reintroduced Elon Musk’s electric vehicle giant back into the portfolio. The stock was previously owned in the fund but was sold in January 2024 as demand for electric vehicles stalled.
‘Although demand for EVs remains tentative, we are increasingly confident in the company’s autonomous driving technology, which we believe is approaching commercial viability, and we see potential for autonomous driving to enhance Tesla’s brand perception and eventually reignite demand for its vehicles,’ said the JP Morgan team in interim results published last week.
Holdings in Regeneron Pharmaceuticals and Eli Lilly were sold while the managers added Johnson & Johnson and tech services group 3M to the trust.
Outlook
US equities may have struggled, relatively speaking, in the first half of the year but the managers said investors are ‘no longer focused on worst-case scenarios’, while the economy is ‘demonstrating resilience’ despite a flattening growth trajectory and the potential for inflation to tick higher.
‘Our confidence in the market’s potential is further underpinned by expectations of robust earnings growth – our analysts predict S&P 500 earnings will increase by 8% in 2025 and 13% in 2026,’ said the team.
European Opportunities (EOT )
Performance
The £475m pan-European equity trust, which faces a continuation vote next year and has been a target of New York activist Saba Capital, has reported a decline in NAV total returns of 3.7% in the six months to end of May, underperforming the 8% rise in the MSCI Europe by a large margin.
Although some of the underperformance was clawed back post-period end, the portfolio was weighed down by Novo Nordisk, which has seen competition in the anti-obesity drug space challenge its share price.
Manager of the trust, Devon Equity Management’s Alexander Darwall, said payments group Worldline had been a ‘bad investment’ which he has now sold, and Dassault Systemes also reported lower growth rates than its automotive industry customer base.
A 28.2% total return for EOT shareholder over the three years to yesterday remains behind 38.6% for the MSCI Europe index.
Portfolio activity
In the period, Darwall sold £137.6m of stocks and reinvested £99.3m. The largest complete sale was Darktrace, which was taken over by a US private equity company. Semiconductor material maker Soitec was sold as its ‘unique semiconductor wafer technology failed to gain traction in new areas’. UK-listed Relx (REL) was reduced again due to good performance.
Darwall established four new positions: Universal Music Group, detection and imaging group Exosens, global money transfer company Wise (WISE), and vacuum valve solutions business VAT Group.
Corporate activity
The board renegotiated the fees paid to Devon Equity Management over the period, and agreed a reduced fee as of 1 October. Devon will be entitled to 0.65% a year on net assets up to £400m, 0.6% between £400m and £600m, and 0.55% above £600m. This compares to the previous fees of 0.8% a year on the first £1bn, 0.7% between £1bn and £1.25bn, and 0.6% above £1.25bn.
The trust faces its three-yearly continuation vote at next year’s annual general meeting. Trust chair Matthew Dobbs, a former Schroders Asia fund manager, acknowledged the ‘below par’ returns in recent years.
‘We are pleased to note that there have been some signs of recovery in the company’s performance in recent months,’ he said.
‘As we approach the three yearly continuation vote…we will continue to keep the company’s performance, and our investment manager, under close review on your behalf,’ he said.
Outlook
Dobbs was positive about the outlook for European markets, stating that they were performing ‘relatively well’ versus the US and that Donald Trump’s tariffs had made European equities ‘look relatively attractive’.
‘This, together with lower oil and gas prices – a particular positive for Europe – make for an encouraging backdrop for the company’s investment strategy,’ he said.
RTW Biotech Opportunities (RTW )
Performance
The £489m portfolio of life sciences and biopharma companies run by RTW Investments las week reported a strong pick-up in its NAV in July. The value of the portfolio rose 7.8%, outperforming the 5.5% gain in both the Nasdaq Biotech and the Russell 2000 Biotech indices.
Robust M&A activity was a boon to the trust, including a proposed acquisition of Verona by Merck at a 23% premium, which added 0.9% to NAV in the month. There are also rumours that Avidity Biosciences – which is top holding at 8.7% of NAV – is evaluating a potential acquisition by Novartis.
Sector update
Political scrutiny of drug pricing in the US intensified in the month, with US president Donald Trump demanding ‘binding commitments’ from 17 pharmaceutical companies to lower prices by September, including applying the ‘most favoured nation’ pricing to Medicaid and direct-to-consumer sales.
Bristol Myers Squibb and Pfizer have already announced a direct-to-consumer option for blood thinning drug Eliquis at a discount of 40% to the list price. Roche has entered into talks to bypass pharmacy benefit managers, which take a significant share of drug profits in favour of selling directly to patients.
RTW’s update also highlighted Kailera Therapeutics, which focuses on next-generation obesity treatments and is 4.6% of NAV. The holding has announced positive phase three trials in China, paving the way for a potential valuation uplift in the coming months.
Partners Group Private Equity (PEY )
Performance
The £829m portfolio of private equity and debt, formerly known as Princess Private Equity, reported a flat NAV over the month as currency headwinds offset positive value creation in June.
Both listed and private holdings performed well despite global markets navigating ‘persistent volatility amid lingering uncertainties, creating sustained headwinds for the US dollar’.
The depreciation in the dollar was the primary factor impacting the NAV but the board said despite this the portfolio ‘demonstrated resilience’.
International Schools Partnership contributed positives, reflecting its ‘robust financial performance, both organically and via acquisitions’.
‘The leading global [schools] education provider continues to excel in delivering English and multi-lingual education,’ said the trust, which is managed by Partners Group.
Portfolio activity
The fund received €28.4m of distributions in June, with €22m of the total coming from a block trade in Indian retailer Vishal Mega Mart. PEY has been invested in Vishal since 2018 and remains invested.
‘Vishal has demonstrated strong growth, with EBITDA and revenue growing at 24% [compound annual growth rate] in the last three years reflecting double-digit same-store sales growth and the successful execution of several value creation initiatives, including store expansion and operational efficiency improvements,’ said the update.
The remaining balance of the distributions was from dermatology group Galderma and Indian affordable housing finance group Aavas Financiers.
The managers invested €3.1m into an unspecified Swedish cloud software-as-a-service platform which offers ‘comprehensive accounting and various financial service solutions tailored for small and medium-sized businesses’.
