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JPMorgan UK small and mid-cap trusts to merge

14 November 2023

The trusts, which have the same portfolio managers, will become a £430m investment company with a wider opportunity set and lower fees.

By Emma Wallis,

News editor, Trustnet

The JPMorgan UK Smaller Companies and the JPMorgan Mid Cap investment trusts will combine to form the JPMorgan UK Small Cap Growth & Income trust. The new £430m investment company will have lower costs and fees and a wider investment universe.

Georgina Brittain and Katen Patel, who already manage both trusts, will run the new entity.

John Evans, chairman of JPMorgan Mid Cap, said: “The new combined vehicle will afford the managers the freedom to allocate capital across the enlarged universe where the opportunities are most attractive including maintaining, if they consider it appropriate, a significant exposure to constituents of the FTSE 250 index, while also investing in AIM traded companies.”

The £196m small-cap trust has delivered top-quartile performance over five years and is well ahead of its benchmark, as the chart below shows. However, it is in the third quartile over one and three years when compared to peers in the IT UK Smaller Companies sector.

Share price total return of trust vs benchmark over 5yrs

Source: FE Analytics

The £182m JPMorgan Mid Cap trust is fourth quartile over one and five years and third quartile over three years within the IT UK All Companies sector.

Share price total return of trust vs benchmark over 5yrs

Source: FE Analytics

Both trusts are trading at around a 13% discount to their net asset value. The mid-cap trust has a 3.8% yield and the small-cap trust has a 5.8% yield, according to FE Analytics.

Going forward, the board of JPMorgan UK Smaller Companies has agreed to implement an enhanced dividend policy targeting a 4% yield on net asset value.

JP Morgan is amending its fee structure for the new combined trust. It previously charged 0.65% on net assets up to £300m and then 0.55% on assets above that amount. For the new trust, it is lowering the threshold to £200m so fees will reduce to 0.55% from 0.65% for assets over £200m.

Andrew Impey, chairman of JPMorgan UK Smaller Companies trust, said: “There is a strong case for long-term investment in UK smaller companies. The valuations are attractive in absolute and relative terms [and] the outlook remains favourable, despite some near-term challenges. The proposed combination with JPMorgan Mid Cap investment trust will enhance this opportunity and create a larger, more liquid investment trust.

"Both boards believe that shareholders will benefit from the reduction in costs, contributing to the good potential for capital growth, and the new enhanced dividend policy.”

To implement the merger, which is still subject to shareholder approval, shareholders in the mid-cap trust will receive new ordinary shares in the small-cap trust on a formula asset value basis. They can also choose to receive a cash distribution of up to 15% of the mid-cap trust’s ordinary shares in issue.

This merger is the third investment trust consolidation that JPMorgan Asset Management has undertaken in the past two years and is part of a broader trend to create larger, more liquid vehicles with lower costs.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.