JESC and WPCT – Much in Common

Last week I received the Annual Report of JP Morgan European Smaller Companies Trust (JESC) which I have held since 2012. It has a good long-term performance but last year was disappointing. Net asset value return of minus 7.5% which is worse than their benchmark of minus 3.6%. The share price did even worse and it is now on a discount to NAV of nearly 15% as the discount has widened. The under-performance was attributed to poor stock selection.

The Chairman, Carolan Dobson, is stepping down at the AGM this year after nine years’ service. I did not support her re-election last year as I thought she had too many jobs. She is also the Chair of The Brunner Investment Trust plc, Baillie Gifford UK Growth plc , BlackRock Latin American Investment Trust plc and a director of Woodford Patient Capital Trust (WPCT). You have probably been reading much about the latter of later given Neil Woodford’s difficulties.

The Annual Report of JESC says “The Trust’s excellent longer-term performance remains intact” which is a very questionable statement. JESC is an actively managed fund and the manager says “The investment process is driven by bottom-up stock selection with a focus on identifying market leading growth companies with a catalyst for outperformance”, i.e. it’s a stock picking model like the Woodford funds.

Last year that clearly has not worked. Perhaps it is because of a new focus on environmental, social and governance factors (ESG) which has been “rigorously integrated into their investment process”. They have also been “selectively adding cyclical companies back into the portfolio where valuations have become attractive”.

I will be unable to attend the AGM on the 10th July but I think shareholders who do need to question whether this is another stock-picking manager who has lost his touch like Woodford.

On WPCT there was an interesting article today (Saturday 15/6/2019) on Industrial Heat, an unlisted company which is the biggest holding in the fund. The company is valued at almost $1 billion after a new round of fund raising. The company is focused on cold fusion which nobody has yet proved to be a viable technology and the FT article is somewhat of a hatchet job on the business. It all looks exceedingly dubious and I could not find any detailed review of the technology that the company is claiming or much information on the company at all.

I think the boards of both WPCT and JESC need to start asking some tough questions of their fund managers. Such as “convince me why these companies in the portfolio are good investments?”.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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