The US market looks expensive, with even smaller companies trading at forward price/earnings ratios of more than 21, says Leonora Walters in the Investors Chronicle. A spate of acquisitions by larger predators has pushed up ratings. However, one cheaper way to gain exposure could be via JPMorgan’s US Smaller Companies Investment Trust (LSE: JUSC).
Under manager Don San Jose, the fund has returned 19.2% over one year, 87.8% over three years and 127.4% over five years, but its share price has recently underperformed. It currently trades on a discount to net asset value of around 4.2%. San Jose blames this on the poor performance of healthcare stocks, as well as technology holdings, such astypesetting specialist Monotype Imaging.
The fund aims to deliver capital growth by investing in innovative smaller firms trading at a discount to their intrinsic value. San Jose doesn’t hang onto expensive holdings and is “very valuation disciplined”.
Finding bargains is getting tougher, although he thinks uncertainty over interest rates could generate buying opportunities. He believes that small US firms are a better way to gain US exposure than large caps, as they “are not necessarily affected by some of the themes that affect large caps and over the longer term they have outperformed”.
San Jose avoids risky sectors, such as biotech, favouring financials and consumer stocks, especially if they offer share buybacks or are launching new products. Recent strong performers include real-estate firm Marcus & Millichap and cyber-security specialist Imperva. The annual charge is 1%.
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| JP Morgan US Smaller Co’s top ten holdings | |
|---|---|
| Name of holding | % of assets |
| Waste Connections Inc | 2.90% |
| Jarden Corp | 2.70% |
| Toro Co | 1.90% |
| Spectrum Brands Holdings Inc | 1.90% |
| Brinker International | 1.90% |
| Pool Corp | 1.80% |
| Patrick Industries Inc | 1.80% |
| Douglas Dynamics Inc | 1.80% |
| AptarGroup Inc | 1.70% |
| Silgan Holdings Inc | 1.60% |