JPMorgan US Smaller Companies Investment Trust plc. Half Year Report & Accounts for the six months ended 30th June 2017

Transcription

1 JPMorgan US Smaller Companies Investment Trust plc Half Year Report & Accounts for the six months ended 30th June 2017

2 Features Objective Capital growth from investing in US smaller companies. Investment team The investment team is situated in New York. The portfolio manager, Don San Jose, has managed the portfolio since November Don is supported by Dan Percella and three experienced investment professionals dedicated to researching US smaller companies, as well as the wider JPMAM investment management team. Investment Policy The portfolio is a product of the investment team s bottom-up investment approach and disciplined portfolio construction. The investment philosophy is simple and straightforward; to invest in companies that have a sustainable competitive advantage, run by competent management teams who have a track record of success and are good stewards of capital; and to focus on owning equity stakes in businesses that trade at a discount to their intrinsic value. Benchmark The Russell 2000 Index total return with net dividends reinvested, expressed in sterling terms. This index is a smaller companies index and is rebalanced annually to represent the bottom 10% by market capitalisation of all quoted companies in the US. Comparison of the JPMorgan US Smaller Companies Investment Trust plc s (the Company ) performance is made with this benchmark. Capital Structure At 30th June 2017, the Company s share capital comprised 56,970,928 ordinary shares of 2.5p each, including 699,000 shares held in Treasury. Continuation Vote In accordance with the Company s Articles of Association, the Directors are required to propose a resolution that the Company continue as an investment trust at the Annual General Meeting in 2020 and every fifth year thereafter. Management Company and Company Secretary The Company employs JPMorgan Funds Limited ( JPMF or the Manager ) as its Alternative Investment Fund Manager and Company Secretary. JPMF delegates the management of the Company s portfolio to JPMorgan Asset Management ( JPMAM ). FCA regulation of non-mainstream pooled investments The Company currently conducts its affairs so that the shares issued by JPMorgan US Smaller Companies Investment Trust plc can be recommended by Independent Financial Advisers to ordinary retail investors in accordance with the FCA s rules in relation to non-mainstream investment products and intends to continue to do so for the foreseeable future. The shares are excluded from the FCA s restrictions which apply to non-mainstream investment products because they are shares in an investment trust. Association of Investment Companies (AIC) The Company is a member of the AIC. Website The Company s website, which can be found at includes useful information on the Company, such as daily share prices, factsheets and current and historic half year and annual reports.

3 Contents HALF YEAR PERFORMANCE FINANCIAL STATEMENTS 2 Total Returns 10 Statement of Comprehensive Income 3 4 ABOUT THE COMPANY Chairman s Statement Investment Managers Report Statement of Changes in Equity Statement of Financial Position Statement of Cash Flows 7 8 INVESTMENT REVIEW Sector Analysis List of Investments Notes to the Financial Statements INTERIM MANAGEMENT REPORT SHAREHOLDER INFORMATION 17 Glossary of Terms and Alternative Performance Measures 18 Where to buy J.P. Morgan Investment Trusts 21 Information about the Company 1

4 Half Year Performance TOTAL RETURNS TO 30TH JUNE % Return to shareholders % Return on net assets 2 0.2% Benchmark total return 3 Financial Data 30th June 31st December % change Shareholders funds ( 000) 158, , Number of shares in issue 4 56,271,928 55,586, Net asset value per share 281.2p 276.7p +1.6 Share price 277.0p 282.0p 1.8 Share price (discount)/premium to net asset value per share (1.5)% 1.9% Gearing 5.3% 4.1% Ongoing charges 1.35% 1.47% Source: Morningstar. Source: J.P. Morgan. Source: Russell Investments. The Company s benchmark is the Russell 2000 Index total return with net dividends reinvested, expressed in sterling terms. 4 Excluding 699,000 (31st December 2016: 1,384,000) shares held in Treasury. A glossary of terms and alternative performance measures are provided on page JPMORGAN US SMALLER COMPANIES INVESTMENT TRUST PLC. HALF YEAR REPORT & ACCOUNTS 2017

5 About the Company CHAIRMAN S STATEMENT Performance Whilst the Company s net asset value (NAV) only increased by a modest 1.6% for the first six months of 2017, it compares favourably with the Russell 2000 index (the Company s benchmark) which fell 0.2% in sterling terms. These returns were hampered by a recovery in sterling against US dollar as the NAV increased 7.5% in local currency which compares with a rise of 5.0% in the Russell 2000 index. Currently the financial press is full of stories about active managers consistently failing to beat their benchmarks (and indeed in some cases apparently not even having a benchmark), and related to this subject, there has been a huge debate on management fees. The strong outperformance achieved by the JPMorgan team since 2009 strongly supports engaging an active manager in the US small cap sector. Since 31st December 2008, when the team in New York took over running the portfolio, the NAV has increased by 391.8% whilst the Russell 2000 index has risen by 256.9%. The NAV naturally includes all costs and fees incurred in the management of these assets whilst the index has no costs to absorb. Discount and Premium During the six month period to 30th June 2017 the share price fell by 1.8% as this was compared to an increase of 1.6% in NAV the modest premium to NAV at year end shifted to a 1.5% discount. As we have written in the past, aligning our share price movement with the change in the NAV is always going to be a challenge as it is more art than science. The relationship between our share price and the NAV is monitored on a daily basis by your Board and our professional advisers and to help with the management of the discount and premium we have in place the authority to repurchase up to 14.99% of the Company s issued share capital and to issue up to 10%. These authorities have been used during the first six months of 2017 and a total of 165,000 shares have been purchased into Treasury at an average discount of 8.5%. The Company currently holds 1.23% of its shares in Treasury, having issued 850,000 shares from Treasury since the year end at an average premium of 1.5%. Outlook I will leave the US market outlook to the experts, as set out on page 6, and instead remind investors why the Board hopes your Company can continue to deliver superior investment returns over the long term. People is undoubtedly the key factor and with Don San Jose and his co-head Dan Percella, the Company has two experienced US small cap managers who, along with three other experienced members of the team, have built a strong team culture around them within the New York-based group. The team has a clearly defined investment philosophy and a disciplined investment process. Over the long term, the US economy has a long history of creating exciting growth prospects in the small cap sector and our Company should continue to take advantage of these opportunities for the reasons set out above. Davina Walter Chairman 17th August

6 About the Company continued INVESTMENT MANAGERS REPORT Market Review The first half of 2017 marked another period of positive returns for US equities, buoyed by strong earnings, benign inflation and synchronized global growth. In a change of pace from 2016, we saw a reversal of market leadership as the so-called Trump trade unwound as initial investor enthusiasm for reform faded with lack of progress on taxes, health care, regulation and infrastructure. As the year progressed, cyclicals ebbed in favour of defensive sectors. Almost everything that worked post-election reversed: small caps lagged large, growth outpaced value, energy and bank stocks underperformed while health care and technology outperformed. Despite Washington s lack of progress on pro-growth policy items, measures of soft data, including consumer and business confidence, have remained near post-election highs. At the same time the trajectory of the US economy remains largely unchanged since the election, highlighting a disconnect between soft and hard data. While there is still hope that meaningful tax and regulatory reforms can accelerate economic growth, Congress s inability to pass healthcare reform may set the stage for disappointments on other agenda items as well. Central bank policy has also been a hot topic as the Federal Reserve appeared willing to look past softer inflation readings with respect to future rate hikes, and is prepared to begin reducing the balance sheet this fall. The ECB also became more hawkish as economic activity in the region has improved, which further pressured an already-weakening US dollar. For the six month period the markets seemed to shrug all concerns aside as strong corporate earnings helped offset the lack of policy initiatives. Large caps, as measured by the S&P 500 Index, rallied +3.9% to outperform more domestically focused small caps which returned 0.2%, as measured by the Russell 2000 Index. Currency, which had a positive impact on absolute returns in 2016, has resulted in more muted returns for GBP investors so far in 2017 as the US dollar weakened. Performance For the six months ended 30th June 2017, the total return on net assets was +1.6%. The portfolio s return was ahead of its benchmark, the Russell 2000 Index, which returned 0.2%. Over the period, the primary driver of the Company s outperformance was superior stock selection across a number of sectors. In particular, our holdings in the materials & processing, consumer staples, financials and technology sectors outperformed their benchmark peer groups and added the most value over the period. Within materials & processing, our preference for the more stable packaging companies proved beneficial. In particular, shares of AptarGroup rallied significantly as they reported better than expected results with strength in its key business areas including pharmaceuticals. The company is a leading manufacturer and designer of dispensing solutions sold into the Beauty & Home, Food & Beverage, and Pharmaceutical industries. We continue to like AptarGroup given their disciplined management team and strong balance sheet. Additionally, we believe they do not get the credit they deserve for their pharmaceutical business, which is a high quality franchise, and is the majority of their profits, yet only about 30% of their sales. Another top contributor in the sector was Cabot Microelectronics, a leading provider of slurries and pads that enable chemical mechanical planarization during the fabrication of integrated circuits. The company reported strong earnings, with continued strong growth in management s three strategic growth areas: tungsten slurries, dielectric slurries and pads. With a solid net cash balance sheet, a high 4 JPMORGAN US SMALLER COMPANIES INVESTMENT TRUST PLC. HALF YEAR REPORT & ACCOUNTS 2017

7 teens return on invested capital, limited capital intensity and a consumables-based business model, we believe Cabot is a high quality way to invest in the semiconductor space. In the consumer staples sector, AdvancePierre Foods was the top contributor to relative performance. The company, which provides value-added protein and handheld convenience products, saw its share price rally after it agreed to be acquired by Tyson Foods. We exited our position during the period. Despite financials lagging the market over the period, our holdings held up better than their peers and so we enjoyed a strong relative contribution in this sector. A handful of names in the sector proved beneficial including Realogy Holdings, HFF and Corelogic. Within technology, our names significantly outperformed with Guidewire Software and Q2 Holdings adding the most value. Guidewire, which provides software to the insurance industry, reported strong earnings which exceeded analyst expectations. Better than expected licensing revenue and lower than expected expenses drove the results. Through a combination of industry-leading innovation and a strong customer-first culture, we believe the company is positioned to be the long term winner in its served market. Q2 is a market leading provider of cloud-based virtual banking solutions to regional and community financial institutions in the US. The company reported another strong quarter of results, driven by a combination of good execution, elevated customer optimism and secular tailwinds as banking activity continued to shift from branches to digital channels. With a predictable business model, strong competitive position, and the continuing shift to digital banking, Q2 remains a core technology holding for us. While the portfolio enjoyed strong stock selection across most sectors, our stock picking in the consumer discretionary space proved more challenging. In particular, our overweight exposure to the restaurant space detracted the most from our relative performance. Within this area, Brinker, Zoe s Kitchen and Papa Johns all suffered share price declines over the period as investor sentiment turned very negative on the space. Impacting performance was weakness in same store sales as well as concerns about margin compression due to higher labour costs. At this time, we don t see any structural reasons to exit these names; however we continue to monitor the situation closely. Another top detractor over the period was Chico s Fas. The women s apparel company reported a tough quarter as they missed on sales and earnings per share. The company also reduced its outlook. Positioning As we have mentioned previously, our sector weights remain a byproduct of our bottom-up investment analysis and our disciplined approach to portfolio construction. We adhere to a consistent investment process, which focuses on identifying companies that possess a sustainable competitive advantage, have a durable business model, and are overseen by a competent management team with a track record of success. Finally, we seek to acquire equity stakes in these businesses when they trade at a discount to what we would deem to be their intrinsic value. Not much has changed in terms of sector exposure over this period. Financials, consumer discretionary and producer durables are the largest sectors by absolute weight and account for approximately 60% of the portfolio s overall allocation. While financials remains the portfolio s largest allocation, it s at an underweight position relative to our benchmark. We have reduced the underweight by over 1% during the period as we have found some new names such as Washington Trust Bancorp to add to the 5

8 About the Company continued INVESTMENT MANAGERS REPORT CONTINUED portfolio. Within financials, we continue to have significant exposure to the regional banks. In the consumer discretionary space, we have trimmed or sold out of some names, but still maintain a sizeable overweight position relative to our benchmark. One area where we have been successful finding compelling investment ideas more recently has been technology. While still at a significant underweight position relative to our benchmark, this underweight has been reduced by nearly 2% over the last few months. New names added in this sector include Tableau and MicroStrategy. Healthcare, as noted in previous commentaries, is another area where we continue to be challenged to find companies that meet our investment criteria. We have brought this underweight down in the last few quarters by adding to existing holdings as well as finding new opportunities. At this time, we remain at a moderate underweight of approximately 1.5% in the healthcare sector. With regards to the Company s level of gearing, which was 5.3% as of 30th June 2017, it has increased slightly from six months ago, when it was 4.1%. As always, we will look to add or trim our gearing opportunistically. Outlook With markets flirting with all-time highs, investors have grown increasingly concerned with valuations. In our view, compared with historic measures, US stocks are trading somewhat above long run equilibrium but not excessively so. Relative to bonds, equities still look attractive with the earnings yield (inverse of P/E) well ahead of the bond yield. At the time of writing this report, Wall Street s 2017 estimates stand at 7% earnings growth for small caps, as measured by the Russell 2000 Index. Absent the passage of meaningful pro-growth policy reforms, we expect US economic growth to remain at levels consistent with its post-recovery average. While we consider the odds of a near-term recession to be low, we remain cognizant of the inherent risks of a fluid geopolitical environment globally. We will also be paying close attention to the unwinding of the greatest monetary experiment in history. As the Fed and other central banks around the world start to reduce their balance sheets we need to be vigilant for potential unintended consequences. An area of obvious concern would be companies with excessive leverage, although some of the egregious examples in energy and M&A related health care have already corrected. We think stock prices can continue to move higher, albeit at a slower pace and with the occasional episodes of volatility that are an inevitable fact of life for equity investors. With fewer overwhelming macroeconomic trends expected in the year ahead, company fundamentals should emerge as critical factors in driving stock performance. We remain focused on finding companies with durable franchises, good management teams and stable earnings, that trade at a discount to their intrinsic value. Don San Jose Dan Percella Investment Managers 17th August JPMORGAN US SMALLER COMPANIES INVESTMENT TRUST PLC. HALF YEAR REPORT & ACCOUNTS 2017

9 Investment Review SECTOR ANALYSIS 30th June st December 2016 Portfolio Benchmark Portfolio Benchmark % 1 % % 1 % Financial Services Consumer Discretionary Producer Durables Health Care Materials & Processing Technology Consumer Staples Energy Utilities Total Based on total investments of 166.7m (31st December 2016: 160.2m). 7

10 Investment Review continued LIST OF INVESTMENTS AT 30TH JUNE 2017 Value Company 000 Financial Services EastGroup Properties, REIT 2,014 IBERIABANK 1,974 BankUnited 1,911 Western Alliance Bancorp 1,864 Morningstar 1,828 National Retail Properties, REIT 1,825 Kinsale Capital 1,806 Associated Banc-Corp 1,805 Realogy 1,787 ProAssurance 1,767 First Horizon National 1,697 Great Western Bancorp 1,670 CoreLogic 1,613 RLJ Lodging Trust, REIT 1,591 HFF A 1,562 Wintrust Financial 1,489 First Hawaiian 1,482 First Financial Bancorp 1,393 Eaton Vance 1,378 Outfront Media, REIT 1,321 Glacier Bancorp 1,303 Moelis A 1,284 City Holding 1,053 Washington Trust Bancorp ,248 Value Company 000 Consumer Discretionary Pool 3,932 Brunswick 2,420 Cinemark 2,061 Instructure 1,811 EW Scripps A 1,807 Malibu Boats A 1,740 LCI Industries 1,667 Brinker International 1,654 ServiceMaster Global 1,598 Papa John s International 1,578 Acushnet 1,565 KAR Auction Services 1,427 Chico s FAS 1,227 Monarch Casino & Resort 1,204 American Eagle Outfitters 1,051 Crocs 938 Zoe s Kitchen 669 Blue Apron A 526 Emerald Expositions Events 501 Red Robin Gourmet Burgers ,784 Producer Durables Toro 4,785 Douglas Dynamics 4,165 Brady A 2,139 Landstar System 2,005 Allison Transmission 1,972 Applied Industrial Technologies 1,598 Knight Transportation 1,583 Proto Labs 1,538 Altra Industrial Motion 1,464 Lincoln Electric 1,423 Generac 1,325 Herman Miller 1,254 US Ecology 957 Team ,852 8 JPMORGAN US SMALLER COMPANIES INVESTMENT TRUST PLC. HALF YEAR REPORT & ACCOUNTS 2017

11 LIST OF INVESTMENTS CONTINUED Value Company 000 Health Care Catalent 3,198 West Pharmaceutical Services 3,074 HealthSouth 3,052 Medidata Solutions 2,229 WellCare Health Plans 2,146 VWR 1,998 Cotiviti 1,595 Patheon 1,441 ICU Medical 1,347 Magellan Health 1,101 IDEXX Laboratories 962 Prestige Brands ,462 Materials & Processing AptarGroup 4,576 Cabot Microelectronics 2,348 RBC Bearings 2,247 Patrick Industries 2,196 GCP Applied Technologies 1,732 Quaker Chemical 1,518 Watsco 1,396 JELD-WEN 914 Silgan ,314 Technology Q2 2,242 Guidewire Software 2,225 Tyler Technologies 1,990 GrubHub 1,789 Blackbaud 1,694 Aspen Technology 1,472 Manhattan Associates 1,030 Tableau Software A 977 Imperva 959 MicroStrategy A ,116 Value Company 000 Consumer Staples Spectrum Brands 3,347 Performance Food 2,471 J&J Snack Foods 758 6,576 Energy Patterson-UTI Energy 2,248 SRC Energy 1,717 Dril-Quip 813 Cimarex Energy 529 5,307 Utilities Portland General Electric 2,525 NorthWestern 2,489 5,014 Total Investments 166,673 9

12 Financial Statements STATEMENT OF COMPREHENSIVE INCOME FOR THE SIX MONTHS ENDED 30TH JUNE 2017 (Unaudited) (Unaudited) (Audited) Six months ended Six months ended Year ended 30th June th June st December 2016 Revenue Capital Total Revenue Capital Total Revenue Capital Total Gains on investments held at fair value through profit or loss 2,061 2,061 21,509 21,509 52,175 52,175 Net foreign currency gains/(losses) on cash and loans (946) (946) (1,736) (1,736) Income from investments 1,242 1,242 1,037 1,037 2,279 2,279 Interest receivable Gross return 1,284 2,515 3,799 1,052 20,563 21,615 2,317 50,439 52,756 Management fee (86) (776) (862) (60) (540) (600) (134) (1,208) (1,342) Other administrative expenses (207) (207) (217) (217) (438) (438) Net return on ordinary activities before finance costs and taxation 991 1,739 2, ,023 20,798 1,745 49,231 50,976 Finance costs (15) (133) (148) (9) (77) (86) (20) (182) (202) Net return on ordinary activities before taxation 976 1,606 2, ,946 20,712 1,725 49,049 50,774 Taxation (188) (188) (148) (148) (336) (336) Net return on ordinary activities after taxation 788 1,606 2, ,946 20,564 1,389 49,049 50,438 Return per share (note 3) 1.40p 2.86p 4.26p 1.11p 35.82p 36.93p 2.51p 88.76p 91.27p No interim dividend has been declared in respect of the six months ended 30th June 2017 (2016: nil). All revenue and capital items in the above statement derive from continuing operations. The Total column of this statement is the profit and loss account of the Company and the Revenue and Capital columns represent supplementary information prepared under guidance issued by the Association of Investment Companies. The net return on ordinary activities after taxation represents the profit for the period/year and also the total comprehensive income. 10 JPMORGAN US SMALLER COMPANIES INVESTMENT TRUST PLC. HALF YEAR REPORT & ACCOUNTS 2017

13 STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED 30TH JUNE 2017 Called up Capital share Share redemption Capital Revenue capital premium reserve reserves 1 reserve 1 Total Six months ended 30th June 2017 (Unaudited) At 31st December ,424 8,998 1, ,567 (16) 153,824 Shares issued from Treasury 2, ,414 Repurchase of shares into Treasury (420) (420) Net return on ordinary activities 1, ,394 At 30th June ,424 11,347 1, , ,212 Six months ended 30th June 2016 (Unaudited) At 31st December ,424 8,046 1,851 93,889 (1,405) 103,805 Repurchase of shares into Treasury (2,475) (2,475) Net return on ordinary activities 19, ,564 At 30th June ,424 8,046 1, ,360 (787) 121,894 Year ended 31st December 2016 (Audited) At 31st December ,424 8,046 1,851 93,889 (1,405) 103,805 Shares issued from Treasury 952 1,671 2,623 Repurchase of shares into Treasury (3,042) (3,042) Net return on ordinary activities 49,049 1,389 50,438 At 31st December ,424 8,998 1, ,567 (16) 153,824 1 These reserves form the distributable reserves of the Company and may be used to fund distributions of profits to investors via dividend payments. 11

14 Financial Statements continued STATEMENT OF FINANCIAL POSITION AT 30TH JUNE 2017 (Unaudited) (Unaudited) (Audited) 30th June th June st December Fixed assets Investments held at fair value through profit or loss 166, , ,194 Current assets Derivative financial assets 1 Debtors 1, Cash and cash equivalents 6,367 4,788 9,408 7,764 5,021 10,059 Current liabilities Creditors: amounts falling due within one year 1 (16,225) (15,211) (16,429) Derivative financial liabilities (5) Net current liabilities (8,461) (10,195) (6,370) Total assets less current liabilities 158, , ,824 Net assets 158, , ,824 Capital and reserves Called up share capital 1,424 1,424 1,424 Share premium 11,347 8,046 8,998 Capital redemption reserve 1,851 1,851 1,851 Capital reserves 142, , ,567 Revenue reserve 772 (787) (16) Total shareholders funds 158, , ,824 Net asset value per share (note 4) 281.2p 222.0p 276.7p 1 At 30th June 2017, the Company had drawn down US$20.0m (GBP 15.0m equivalent) on its loan facility with Scotiabank. 12 JPMORGAN US SMALLER COMPANIES INVESTMENT TRUST PLC. HALF YEAR REPORT & ACCOUNTS 2017

15 STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED 30TH JUNE 2017 (Unaudited) (Unaudited) (Audited) Six months ended Six months ended Year ended 30th June th June st December Net cash outflow from operations before dividends and interest (note 5) (1,074) (858) (1,801) Dividends received 1, ,687 Interest received Overseas tax recovered Interest paid (136) (66) (164) Net cash inflow/(outflow) from operating activities 49 (4) (239) Purchases of investments (25,713) (11,742) (29,098) Sales of investments 20,890 15,261 34,985 Settlement of forward currency contracts 5 (8) 6 Overseas tax recovered on capital events 75 Net cash (outflow)/inflow from investing activities (4,743) 3,511 5,893 Shares re-issued from Treasury 2,414 2,623 Repurchase of shares into Treasury (420) (2,475) (3,042) Net cash inflow/(outflow) from financing activities 1,994 (2,475) (419) (Decrease)/increase in cash and cash equivalents (2,700) 1,032 5,235 Cash and cash equivalents at start of period 9,407 3,298 3,298 Foreign exchange (losses)/gains (340) Cash and cash equivalents at end of period 6,367 4,788 9,407 (Decrease)/increase in cash and cash equivalents (2,700) 1,032 5,235 Cash and cash equivalents consist of: Cash and short term deposits 7 3 Bank overdraft (1) Cash held in JPMorgan US Dollar Liquidity Fund 6,360 4,785 9,408 Total 6,367 4,788 9,407 13

16 Financial Statements continued NOTES TO THE FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30TH JUNE Financial statements The information contained within the financial statements in this half year report has not been audited or reviewed by the Company s auditors. The figures and financial information for the year ended 31st December 2016 are extracted from the latest published financial statements of the Company and do not constitute statutory accounts for that year. Those financial statements have been delivered to the Registrar of Companies, including the report of the auditors which was unqualified and did not contain a statement under either section 498(2) or 498(3) of the Companies Act Accounting policies The financial statements have been prepared in accordance with the Companies Act 2006, FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland of the United Kingdom Generally Accepted Accounting Practice ( UK GAAP ) and with the Statement of Recommended Practice Financial Statements of Investment Trust Companies and Venture Capital Trusts (the revised SORP ) issued by the Association of Investment Companies in November 2014 and updated in January FRS 104, Interim Financial Reporting, issued by the Financial Reporting Council ( FRC ) in March 2015 has been applied in preparing this condensed set of financial statements for the six months ended 30th June All of the Company s operations are of a continuing nature. The accounting policies applied to this condensed set of financial statements are consistent with those applied in the financial statements for the year ended 31st December Return per share (Unaudited) (Unaudited) (Audited) Six months ended Six months ended Year ended 30th June th June st December Return per share is based on the following: Revenue return ,389 Capital return 1,606 19,946 49,049 Total return 2,394 20,564 50,438 Weighted average number of shares in issue 56,210,630 55,679,115 55,258,808 Revenue return per share 1.40p 1.11p 2.51p Capital return per share 2.86p 35.82p 88.76p Total return per share 4.26p 36.93p 91.27p 4. Net asset value per share (Unaudited) (Unaudited) (Audited) 30th June th June st December 2016 Net assets ( 000) 158, , ,824 Number of shares in issue 56,271,928 54,900,928 55,586,928 Net asset value per share 281.2p 222.0p 276.7p 14 JPMORGAN US SMALLER COMPANIES INVESTMENT TRUST PLC. HALF YEAR REPORT & ACCOUNTS 2017

17 5. Reconciliation of net return on ordinary activities before finance costs and taxation to net cash outflow from operations before dividends and interest (Unaudited) (Unaudited) (Audited) Six months ended Six months ended Year ended 30th June th June st December Net return on ordinary activities before finance costs and taxation 2,730 20,798 50,976 Less: capital return on ordinary activities before finance costs and taxation (1,739) (20,023) (49,231) Decrease/(increase) in accrued income and other debtors 176 (197) Decrease in accrued expenses (10) (25) (4) Management fee charged to capital (776) (540) (1,208) Overseas withholding tax (209) (156) (418) Dividends received (1,198) (897) (1,687) Interest received (48) (15) (32) Net cash outflow from operations before dividends and interest (1,074) (858) (1,801) 6. Fair valuation of financial instruments The fair value hierarchy analysis for financial instruments held at fair value at the period end is as follows: (Unaudited) (Unaudited) (Audited) Six months ended Six months ended Year ended 30th June th June st December 2016 Assets Liabilities Assets Liabilities Assets Liabilities Level 1: Quoted prices for identical instruments in active markets 166, , ,194 Level 2: Inputs other than quoted prices which are observable 1 1 (5) Total value of instruments 166, ,089 (5) 160,194 1 Forward currency contracts. 15

18 Interim Management Report The Company is required to make the following disclosures in its Half Year Report: Principal Risks and Uncertainties The principal risks and uncertainties faced by the Company remain unchanged and fall into the following broad categories: investment and strategy; loss of investment team or investment manager; discount; market; political and economic; accounting, legal and regulatory; corporate governance and shareholder relations; operational; cybercrime; foreign currency; going concern; and financial. Information on each of these areas is given in the Business Review within the Annual Report and Accounts for the year ended 31st December Related Parties Transactions During the first six months of the current financial year, no transactions with related parties have taken place which have materially affected the financial position or the performance of the Company. Going Concern The Directors believe, having considered the Company s investment objectives, risk management policies, capital management policies and procedures, nature of the portfolio and expenditure projections, that the Company has adequate resources, an appropriate financial structure and suitable management arrangements in place to continue in operational existence for the foreseeable future and, more specifically, that there are no material uncertainties pertaining to the Company that would prevent its ability to continue in such operational existence for at least twelve months from the date of the approval of this half yearly financial report. For these reasons, they consider there is reasonable evidence to continue to adopt the going concern basis in preparing the accounts. Directors Responsibilities The Board of Directors confirms that, to the best of its knowledge: (i) (ii) the condensed set of financial statements contained within the half year financial report has been prepared in accordance with FRS 104 Interim Financial Reporting and gives a true and fair view of the state of affairs of the Company, and of the assets, liabilities, financial position and net return of the Company as at 30th June 2017 as required by the UK Listing Authority Disclosure and Transparency Rules 4.2.4R; and the interim management report includes a fair review of the information required by 4.2.7R and 4.2.8R of the UK Listing Authority Disclosure and Transparency Rules. In order to provide these confirmations, and in preparing these financial statements, the Directors are required to: select suitable accounting policies and then apply them consistently; make judgements and accounting estimates that are reasonable and prudent; state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business; and the Directors confirm that they have done so. For and on behalf of the Board Davina Walter Chairman 17th August JPMORGAN US SMALLER COMPANIES INVESTMENT TRUST PLC. HALF YEAR REPORT & ACCOUNTS 2017

19 Shareholder Information GLOSSARY OF TERMS AND ALTERNATIVE PERFORMANCE MEASURES Return to shareholders Total return to the investor, on a last traded price to last traded price basis, assuming that all dividends received were reinvested, without transaction costs, into the ordinary shares of the Company at the time the shares were quoted ex-dividend (see page 2). Return on net assets Total return on net asset value per share, on a bid value to bid value basis, assuming that all dividends paid out by the Company were reinvested into the shares of the Company at the NAV per share at the time the shares were quoted ex-dividend (see page 2). Benchmark return Total return on the benchmark assuming that all net dividends received were reinvested in the shares of the underlying companies at the time the shares were quoted ex-dividend (see page 2). The benchmark is a recognised index of stocks which should not be taken as wholly representative of the Company s investment universe. The Company s investment strategy does not follow or track this index and consequently, there may be some divergence between the Company s performance and that of the benchmark. Share price discount/premium to net asset value ( NAV ) If the share price of an investment trust is lower than the NAV per share, the Company s shares are said to be trading at a discount. The discount is shown as a percentage of the NAV. The opposite of a discount is a premium. It is more common for an investment trust s shares to trade at a discount than at a premium (see page 2). Gearing/Net Cash Gearing represents the excess amount above shareholders funds of total investments expressed as a percentage of the shareholders funds. If the amount calculated is negative, this is shown as a net cash position (see page 2). Ongoing Charges Management fee and all other operating expenses, excluding finance costs, expressed as a percentage of the average of the daily net assets during the year. The ongoing charges are calculated in accordance with guidance issued by the AIC. The figures as at 30th June 2017 are estimated annualised figures based on the six months to 30th June 2017 (see page 2). 17

20 Shareholder Information continued WHERE TO BUY J.P. MORGAN INVESTMENT TRUSTS You can invest in a J.P. Morgan investment trust through the following; 1. Directly from J.P. Morgan Investment Account The Company s shares are available in the J.P. Morgan Investment Account, which facilitates both regular monthly investments and occasional lump sum investments in the Company s ordinary shares. Shareholders who would like information on the Investment Account should call J.P. Morgan Asset Management free on or visit its website at am.jpmorgan.co.uk/investor Stocks & Shares Individual Savings Accounts (ISA) The Company s shares are eligible investments within a J.P. Morgan ISA. For the 2017/18 tax year, from 6th April 2017 and ending 5th April 2018, the total ISA allowance is 20,000. The shares are also available in a J.P. Morgan Junior ISA. Details are available from J.P. Morgan Asset Management free on or via its website at am.jpmorgan.co.uk/investor Please note this list is not exhaustive and the availability of individual trusts may vary depending on the provider. These websites are third party sites and J.P. Morgan Asset Management does not endorse or recommend any. Please observe each site s privacy and cookie policies as well as their platform charges structure. 3. Through a professional adviser Professional advisers are usually able to access the products of all the companies in the market and can help you find an investment that suits your individual circumstances. An adviser will let you know the fee for their service before you go ahead. You can find an adviser at unbiased.co.uk You may also buy investment trusts through stockbrokers, wealth managers and banks. To familiarise yourself with the Financial Conduct Authority (FCA) adviser charging and commission rules, visit fca.org.uk 2. Via a third party provider Third party providers include; AJ Bell Alliance Trust Savings Barclays Stockbrokers Bestinvest Charles Stanley Direct FundsNetwork Hargreaves Lansdown Interactive Investor James Brearley James Hay Selftrade TD Direct The Share Centre 18 JPMORGAN US SMALLER COMPANIES INVESTMENT TRUST PLC. HALF YEAR REPORT & ACCOUNTS 2017

21 Be ScamSmart Investment scams are designed to look like genuine investments Spot the warning signs Have you been: contacted out of the blue promised tempting returns and told the investment is safe called repeatedly, or told the offer is only available for a limited time? If so, you might have been contacted by fraudsters. Avoid investment fraud 1 Reject cold calls If you ve received unsolicited contact about an investment opportunity, chances are it s a high risk investment or a scam. You should treat the call with extreme caution. The safest thing to do is to hang up. 2 Check the FCA Warning List The FCA Warning List is a list of firms and individuals we know are operating without our authorisation. 3 Get impartial advice Think about getting impartial financial advice before you hand over any money. Seek advice from someone unconnected to the firm that has approached you. Remember: if it sounds too good to be true, it probably is! Report a Scam If you suspect that you have been approached by fraudsters please tell the FCA using the reporting form at You can also call the FCA Consumer Helpline on If you have lost money to investment fraud, you should report it to Action Fraud on or online at Find out more at 19

22 Information about the Company FINANCIAL CALENDAR Financial year end Final results announced Half year end Half year results announced Dividend (if any) Annual General Meeting 31st December March 30th June August May April History JPMorgan US Smaller Companies Investment Trust plc was incorporated in 1955 as Atomic Securities Trust Limited. It was dormant until 1962 when it changed its name to Fledgeling Investments Limited and began operations as an unquoted investment company. The trust was wholly owned by a number of JPMorgan investment trusts and invested in listed and unlisted companies in the UK and US which for reasons of small size, illiquidity or risk, were unsuitable for direct investment. In 1982, with assets of 9.2 million, it obtained a listing on the London Stock Exchange and gained investment trust status, at which time it changed its name to The Fleming Fledgeling Investment Trust plc. In April 1998, the Company changed its mandate and also its name to The Fleming US Discovery Investment Trust plc, then again to JPMorgan Fleming US Discovery Investment Trust plc in May 2002 and to JPMorgan US Discovery Investment Trust plc in April The Company adopted its present name in April Directors Davina Walter (Chairman) Christopher Galleymore Julia Le Blan David Ross Shefaly Yogendra Company Numbers Company registration number: London Stock Exchange Code: JUSC LN ISIN: GB00BJL5F346 Bloomberg: JUSC LN Reuters: JUSC.L Market Information The Company s net asset value ( NAV ) is published daily, via the London Stock Exchange. The Company s shares are listed on the London Stock Exchange. The market price is shown daily in the Financial Times, The Times, The Daily Telegraph, The Scotsman and on the JPMorgan internet site at where the share price is updated every 15 minutes during trading hours. Website Share Transactions The Company s shares may be dealt in directly through a stockbroker or professional adviser acting on an investor s behalf. They may also be purchased and held through the J.P. Morgan Investment Account, J.P. Morgan ISA and J.P. Morgan Junior ISA. These products are all available on the online service at jpmorgan.co.uk/online A member of the AIC Manager and Company Secretary JPMorgan Funds Limited Company s Registered Office 60 Victoria Embankment London EC4Y 0JP Telephone number: For company secretarial and administrative matters, please contact Lucy Dina. Depositary BNY Mellon Trust and Depositary (UK) Limited BNY Mellon Centre 160 Queen Victoria Street London EC4V 4LA Custodian JPMorgan Chase Bank, N.A. 25 Bank Street Canary Wharf London E14 5JP Registrars Equiniti Reference 1084 Aspect House Spencer Road Lancing West Sussex BN99 6DA Telephone: Lines open 8.30 a.m. to 5.30 p.m. Monday to Friday. Calls to the helpline will cost no more than a national rate call to a 01 or 02 number. Callers from overseas should dial Notifications of changes of address and enquiries regarding share certificates or dividend cheques should be made in writing to the Registrar quoting reference Registered shareholders can obtain further details on individual holdings on the internet by visiting Independent Auditors Grant Thornton UK LLP Chartered Accountants and Statutory Auditor 30 Finsbury Square London EC2P 2YU Brokers Numis Securities Limited 10 Paternoster Square London EC4M 7LT Telephone number: Savings Product Administrators For queries on the J.P. Morgan Investment Account and J.P. Morgan ISA, see contact details on the back cover of this report. 21

23 J.P. Morgan Helpline Freephone or +44 (0) Telephone lines are open Monday to Friday, 9am to 5.30pm. Telephone calls may be recorded and monitored for security and training purposes. GB I126 08/17