Managers of JPMorgan’s European smaller company trust are confident the global economy is on the road to recovery.
Trust managers Jim Campbell and Francesco Conte recently moved the portfolio towards engineering stocks and reduced its exposure to France.
According to a trading update, the £431m trust has delivered a net asset value return of 16.6 per cent for the year ending 31 March, against the European Smaller Companies benchmark return of 7.2 per cent over the same period.
At the start of the year, the trust’s managers shifted exposure to the industrial engineering sector and in favour of more defensive Europe-based growth companies. The managers also reduced the trust’s large overweight position in France, citing opportunities in the Netherlands.
Its level of gearing was reduced from 7.5 per cent at the end of March 2015, to 2.8 per cent cash at the end of March 2016.
If the global recovery takes hold as the management pair expects, however, they said they will look to redeploy gearing.
“Despite the difficult and volatile markets that we are experiencing, the macroeconomic outlook on balance seems to be improving,” read the statement.
They gave several reasons for this positive outlook on the global economy, including EU president Draghi’s additional quantitative easing, which has put pressure on the US Federal Reserve to keep its interest rate increases on hold.
“In turn this has weakened the US dollar which has been beneficial for commodities and emerging markets. This, coupled with a revival in European and Chinese lending, bodes well for an economic upturn of the global economy in the second half of this year.
As a consequence, he said the trust is now overweight in sectors such as automobile components, software and computer services, along with travel and leisure, while going underweight in healthcare and telecommunications.
John Stirling, chartered financial planner at Walden Capital, said: “It is very interesting that in just four months we have moved from ‘defensive sectors’ to motoring along the ‘road to recovery’.
“This sounds more like a tactical move to take advantage of a change in perception rather than any real underlying change in the economy.
“Of course the ‘rotation into recovery stocks’ is a great story for when the economy starts to recover, but if markets were that easy to predict then we’d all be doing it successfully.”