A unique exposure to domestic US industrials: JPMorgan US Smaller Companies

Short-term noise aside, JUSC offers a unique exposure to domestic US industrials…by Alan Ray

Overview

 
JPMorgan US Smaller Companies (JUSC) is a small- and mid-cap specialist investment trust with a successful long-term track record of investing in quality growth companies, while always paying attention to valuations. Led by Don San Jose since 2008, the JUSC team take a hands-on approach to investing, meeting and visiting companies they invest in regularly. Don and his two experienced co-managers Dan Percella and Jonathan Brachle are supported by a dedicated research team and manage c. US $7bn in similar strategies to JUSC. They continue to believe that US smaller companies are undervalued, with the US equity market largely focussed on a narrow band of mega-cap stocks over recent years and therefore offer attractive valuation on top of, in many cases, reasonable earnings growth. A key overweight sector for JUSC is industrials, with several stocks benefitting from reshoring and a great focus on domestic manufacturing, a theme that has come into sharp focus in 2025, but has been building for some time.

Over the last five years to 02/05/2025 JUSC’s NAV total return of c. 50% is slightly behind the benchmark Russell 2000’s 55%, while over ten years the figures are 122% for JUSC and 103% for the benchmark. The team believe, however, that smaller companies been overshadowed by the performance of the S&P 500’s ten-year total return of 263% and that smaller companies are as a result on a significant valuation discount to large- and especially mega-caps.

The current discount is c. 7% and the board has kept a tight rein on this with steady share buybacks since 2022, which we examine in the Discount section. JUSC has a continuation vote every five years, with the next one due at the June 2025 AGM.

Analyst’s View

Smaller companies generally offer investors the opportunity to invest in less well-researched companies, often more domestically focussed and operating in niches that may not be covered by larger companies. US smaller companies are no different, but with the addition of a continental-sized economy, even a domestically focussed company may have significant growth potential within its home market. Further, the JUSC team continue to note that US smaller companies’ average valuations are bumping along at historic lows in absolute and relative (to large-caps) terms. This all adds up to the potential for idiosyncratic returns in a market that, in recent years, has seen an increasing concentration on a few stocks, and in recent weeks the downside risk of that reliance on a few stocks has been brought home to investors.

At time of writing, in May 2025, markets around the world have fallen sharply and JUSC is not immune to investors taking a ‘risk off’ approach. At the centre of this is the US administration’s aggressive desire to catalyse domestic manufacturing through trade tariffs. While the change of tone is significant, this is not a new trend, and JUSC owns a number of companies in the industrial space where one of the established growth trends is the reshoring of industrial supply chains. This means that, for investors prepared to look through the short-term noise, JUSC represents a way to directly play what is probably the most important theme in equity markets in 2025.

Bull

• US smaller companies remain at a substantial discount to large-caps
• Further, US smaller companies offer diversification from the narrow band of stocks dominating the S&P 500
• The US government is aggressively targeting expansion of domestic manufacturing, a key sector for JUSC

Bear

• Beginning in Q1 2025 sentiment to US equities has turned negative and this has impacted smaller companies
• The effect of recently introduced trade tariffs on the US economy is uncertain
• Gearing can amplify losses as well as gains

See the full research on JUSC here >

_Disclaimer

_{Disclosure – Non-Independent Marketing Communication}

_{This is a non-independent marketing communication commissioned by JPMorgan US Smaller Companies (JUSC). The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.}