Jupiter’s US small cap in­vest­ment trust is just the ticket for tur­bu­lent times

The smaller end of the mar­ket in the States is ben­e­fit­ing from strong eco­nomic con­di­tions, lower taxes and takeover in­ter­est

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An 8% dis­count to net as­set value (NAV) on Jupiter US Smaller

Com­pa­nies (JUS) pre­sents a great buy­ing op­por­tu­nity. With the US econ­omy re­main­ing strong, do­mes­tics ben­e­fit­ing from lower taxes and smaller cor­po­rate fry at­trac­tive as takeover tar­gets, there’s scope for the dis­count to nar­row and the port­fo­lio to be worth a lot more in time.

Fund man­ager Robert Sid­dles seeks out value op­por­tu­ni­ties within the vast uni­verse of US small caps. While his val­ue­ori­ented ap­proach means the fund may lag when mar­kets roar ahead, the port­fo­lio should prove more re­silient when mar­kets en­counter tougher times – a bit like now.

He fo­cuses on cap­i­tal preser­va­tion and avoid­ing down­side risk, in­vest­ing in at­trac­tively val­ued firms with a strong fran­chise, ro­bust free cash flow, pric­ing power and man­age­ment own­ing plenty of shares in the busi­ness (known as ‘skin in the game’).

Fol­low­ing a re­view in­sti­gated by the board, port­fo­lio con­cen­tra­tion has in­creased with Sid­dles seek­ing to hold the best per­form­ers for longer, while sell­ing weaker per­form­ers more quickly.

Bounc­ing back from a dis­ap­point­ing prior year, NAV per share rose 21.1% in the year to 30 June, out­per­form­ing the 14.2% ad­vance of the bench­mark ster­ling-ad­justed Rus­sell 2000 In­dex.

Six­teen of the in­vest­ment trust’s 41 hold­ings are ‘com­pa­nies ca­pa­ble of de­liv­er­ing re­li­able earn­ings growth over a long pe­riod and where the stock price at pur­chase is very cheap com­pared to the un­der­ly­ing busi­ness value,’ says Win­ter­flood an­a­lyst Kieran Drake.

Sid­dles be­lieves US eco­nomic growth can con­tinue de­spite ris­ing in­ter­est rates and the trade war with China, ac­cord­ing to Drake fol­low­ing a re­cent meet­ing with the fund man­ager. Don­ald Trump’s tax cuts are stim­u­lat­ing eco­nomic growth and boost­ing the earn­ings of do­mes­tic US firms, too.

Strong fran­chises gen­er­at­ing sus­tain­able free cash flow make at­trac­tive takeover can­di­dates and there were three takeovers in Jupiter’s port­fo­lio last fi­nan­cial year. Am­plify Snack Brands was taken out for a tasty pre­mium by Her­shey, while two re­gional banks – State Bank Fi­nan­cial and CoBiz Fi­nan­cial – were also bought.

Jupiter US Smaller Com­pa­nies’ cur­rent big­gest hold­ing is Ol­lie’s Bar­gain Out­let, a branded goods dis­counter geared into the fi­nan­cially squeezed US con­sumer’s quest for value and boast­ing good growth po­ten­tial.

In­vestors are also buy­ing ex­po­sure to Chef’s Ware­house, a food dis­trib­u­tor to up­mar­ket restau­rants; used car seller Amer­ica’s Car-Mart; global freight rail­roads op­er­a­tor Ge­ne­see & Wy­oming; nurs­ing home op­er­a­tor En­sign; and in­sur­ance spe­cial­ist Al­leghany, among oth­ers. (JC)

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