A framework for long-term investing

The economic, social and geopolitical effects of Covid-19 are expected to be long-lasting. These changes pose challenges for investors, but also create a wealth of opportunities as companies adapt to a post-pandemic world. In this new environment for value creation, the ability of JGGI to focus on long-term capital growth, while also paying an attractive quarterly dividend, stands it apart from the crowd.

Long-term value creation

JGGI is founded on the belief that for a company to prosper, it not only needs to create shareholder value, but also to sustain that value for the long term. This maxim holds true today just as it did pre-Covid. The only difference is that companies now have a new set of priorities to address.

JGGI is fortunate to be able to leverage the full resources of J.P. Morgan Asset Management’s global equity investment network in search of investment opportunities. Our expert investment analysts maintain a local presence to the companies they cover and have a strong understanding of regional dynamics, helping them conduct in-depth research into the stocks they cover.

Our research focuses on identifying long-term winners based on three criteria: economics; duration; and governance.

The first classification we use in economics – can a business generate a value for shareholders? To assess this we look at fundamental factors such as cash flow generation as well as balance sheet and funding. Companies need to be able to cover their cost of capital in order to be successful in the long run.

The second characteristic is duration and whether companies can sustain long-term value creation. Within duration, there are a number of factors at play – such as environmental and social ones, as well as industry structure and growth, competitive advantage and resilience. Combined, these factors now dictate whether organisations can deliver sustainable growth for their investors even during times of volatility.

‘Identifying long-term winners based on three criteria: economics; duration; and governance’

The final characteristic that we look for is good governance. The former shareholder-centric model of governance that guided boards and business leaders for the past several decades appears to be giving way to a richer model that puts the health and resilience of the company, shareholder focus and value, prudent capital allocation and transparency at its centre.

While governance is an explicit strategic classification in our process, assessing all ESG (environmental, social and corporate governance) factors is also integral to our research. These considerations are imbedded into our approach, with our analysts assessing both fundamental and sustainable aspects of the companies they research. Furthermore, we believe in actively engaging with companies on ESG issues and have a global investment stewardship which has over 20 years’ experience.

A bottom up, best ideas portfolio

This framework has been essential in helping us navigate the post-pandemic world where there are many high quality companies with attractive long-term metrics, whose short-term outlook is clouded by the lingering effects of the pandemic.

For example, we opened a position in Airbus, the French aircraft manufacturer, which had suffered a dramatic share price hit during the onset of the pandemic and continues to face uncertainty.

‘High quality companies with attractive long-term metrics, whose short-term outlook is clouded by the lingering effects of the pandemic’

However, we believe that demand for new aircraft will surpass current expectations over the next decade, as demand for air travel returns. This positive assessment is based in part on our conversations with over 500 businesses about their future corporate travel plans. We found that although many forecast a fall in the number of flights taken to attend internal company meetings, they expect total expenditure on flights to be greater in 2023 than in 2019, as client visits resume and firms send representatives to trade shows and conferences.

We have also taken other opportunities to acquire good, but significantly undervalued, businesses in the industrials and banks sectors. For instance, we have recently added to Schneider Electric, a French power automation and energy management company at the heart of improving the electricity grid, Trane Technologies, a US company and leader in research and development of air conditioning, ventilation and heating products, and Wells Fargo, the large US financial services and banking group.

While the trust can allocate some of its portfolio to emerging markets and smaller companies, which can be more volatile, and while exchange rates can impact returns due to the trust’s international exposure, these risks are somewhat mitigated by our focus on quality companies and diversification across sectors and geographies. This approach has given us, what we believe is a nicely balanced portfolio. And the very broad opportunity set provided by global equity markets continues to offer many other exciting and attractive investment possibilities.

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_{This is a marketing communication and as such the views contained herein do not form part of an offer, nor are they to be taken as advice or a recommendation, to buy or sell any investment or interest thereto. Reliance upon information in this material is at the sole discretion of the reader. Any research in this document has been obtained and may have been acted upon by J.P. Morgan Asset Management for its own purpose. The results of such research are being made available as additional information and do not necessarily reflect the views of J.P. Morgan Asset Management. Any forecasts, figures, opinions, statements of financial market trends or investment techniques and strategies expressed are unless otherwise stated, J.P. Morgan Asset Management’s own at the date of this document. They are considered to be reliable at the time of writing, may not necessarily be all inclusive and are not guaranteed as to accuracy. They may be subject to change without reference or notification to you. It should be noted that the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Changes in exchange rates may have an adverse effect on the value, price or income of the products or underlying overseas investments. Past performance and yield are not reliable indicators of current and future results. There is no guarantee that any forecast made will come to pass. Furthermore, whilst it is the intention to achieve the investment objective of the investment products, there can be no assurance that those objectives will be met. J.P. Morgan Asset Management is the brand name for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. To the extent permitted by applicable law, we may record telephone calls and monitor electronic communications to comply with our legal and regulatory obligations and internal policies. Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance with our EMEA Privacy Policy www.jpmorgan.com/emea-privacy-policy. Investment is subject to documentation. The Annual Reports and Financial Statements, AIFMD art. 23 Investor Disclosure Document and PRIIPs Key Information Document can be obtained free of charge from JPMorgan Funds Limited or www.jpmam.co.uk/investmenttrust. This communication is issued by JPMorgan Asset Management (UK) Limited, which is authorised and regulated in the UK by the Financial Conduct Authority. Registered in England No: 01161446. Registered address: 25 Bank Street, Canary Wharf, London E14 5JP.}