Annual Financial Report

RNS Number : 3787T

JPMorgan US Smaller Co. IT

24 March 2021

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN US SMALLER COMPANIES INVESTMENT TRUST PLC

FINAL RESULTS FOR THE YEAR ENDED
31ST DECEMBER 2020

Legal Entity Identifier :   549300MDD7SOXDMBN667

Information disclosed in accordance with the DTR 4.1.3

CHAIRMAN'S STATEMENT

Performance

I would like to start my first annual report by thanking the former Chairman, Davina Walter, for her many years of work on behalf of shareholders both as a Director and as Chairman.

My report comes at the end of a tumultuous year for the world and not least in the USA which is the stock market in which we invest. The devastating effects of the COVID-19 pandemic which was, unknown to us at the time, just beginning in China at the start of the year has dominated the year, so far infecting over 120 million¹ people globally and resulting in some 2.6 million deaths. Domestically the US election in November dominated political news flow, with the Biden victory and subsequent Democratic wins in the Georgian Senate Runoff elections in January securing the Democrats control of much of the machinery of US government, despite President Trump's much expected protests.

Against this background it is not surprising that the market in which your Company invests, as measured by the benchmark index, Russell 2000 Index in sterling terms, was remarkably volatile over the year, falling some 32.6% in March before recovering to be up over 18.4% up by mid-December; a range of over 50%².

Navigating such volatile markets is not an easy job and your investment management team deserve credit for matching the benchmark over the year under review with both the Company's net asset value ('NAV') and the benchmark index producing a total return of +16.0%³. The share price return over the period was a little less, with a share price total return of +15.5%³, reflecting a slight erosion of the premium to NAV at the 31st December 2020 when compared with the previous year end. Performance remains ahead of benchmark both in NAV and share price terms over the longer term (over 3, 5 and 10 year measures).

Full details of investment performance, changes to the portfolio and the outlook can be found in the investment managers' report on pages 8 to 10 of the Annual Report and Financial Statements.

Discount and Premium

The Board aims to align the Company's share price movements to changes in its net asset value and monitors the discount or premium at which the shares trade on a daily basis with the assistance of its financial adviser and Manager. However, a number of factors make it difficult to align share price and net asset value movements including, the often volatile prices of smaller companies investments; the additional volatility introduced by owning assets denominated in dollars whilst having a share price and net asset value reported in sterling and the fact that the Company's investment portfolio continues to trade for a number of hours after the close of the UK stock market.

Over the course of the year, the discount averaged 5.4%. Having begun the year trading at a premium of 2.6% to NAV, the Company's shares moved to a discount as markets reacted in March to the COVID-19 pandemic. As was the case with many investment trusts, the initial sharp market sell-off saw an increase in both discount levels and discount volatility. In the Company's case the discount widened materially towards 20.0%, albeit only for one day, before trading at a discount in the 5-10% for much of 2020. Towards the end of the year the Company's shares again moved to a premium to close the year at a premium of 2.1% to NAV.

¹   As at 19th March 2021.

²   Data in GBP: Open @ 1257.99, Low = 847.91, High = 1489.76, Close = 1446.67. Data shows market levels and not returns (i.e. excluding dividends) as this is a better measure or rises and falls.

³   Exact numbers: NAV = 16.01%, Benchmark = 16.02% and Share Price = 15.47%.

Share Issuance and Buybacks

The Company's move from premium to discount and back to a premium again is reflected in its share buyback and issuance behaviour over the year. Early in 2020, while trading at a premium to NAV, the Company issued 960,000 shares at an average premium to NAV of just over 1.5%.

In subsequent months, the Company bought back shares into Treasury totalling 377,546 shares in periods when discount levels were particularly elevated, reflected in the weighted average discount of 11.8% at which these shares were acquired. As the Company again moved to trade at a premium, the Company again issued shares at a premium to NAV, issuing some 1,217,454 shares at an average premium of 1.7%.

The Company's share buyback policy continues to have three major aims; to buy back shares with the aim of enhancing the NAV for remaining shareholders, to minimise discount volatility and ultimately to ensure that the shares do not trade at an excessive discount for a prolonged period of time. Of course, our ability to achieve these outcomes will depend on prevailing market conditions and the behaviour and risk appetites of investors.

The Company will also look to issue shares to enhance shareholders' NAV and to avoid the formation of an excessive premium which may not be in the best interests of incoming and continuing shareholders alike.

Since the year end the Company has issued a further 3,080,000 shares.

Revenue and Dividend

The impact of the pandemic on the dividends received from the Company's portfolio has been relatively muted, with gross revenue for the year down by just 2.0% from last year's levels. The Board is therefore delighted to again recommend a dividend of 2.5p in respect of the financial year ended 31st December 2020. Subject to shareholders' approval at the Annual General Meeting ('AGM'), this dividend will be paid on 14th May 2021 to shareholders on the register at the close of business on 16th April 2021.

Shareholders should note the Company's objective is unchanged and remains one of capital growth and our dividend policy will therefore reflect the naturally occurring income on the underlying portfolio.

Gearing

Throughout the year, the Company has taken advantage of its $25 million revolving credit facility to maintain a meaningful but modest level of gearing. It closed the year with a gearing level of 6.1% having averaged approximately 6.0% throughout the year. The Board believes that the use of gearing is a key advantage of the investment trust structure and looks to maintain a consistent level of gearing within its permitted 10% cash to 15% geared range. Our policy sees gearing moved in response to changes in the Manager's perception of longer term market risks and opportunities rather than being used as a short term market-timing tool.

Board Succession

At the Company's AGM in May 2020 we wished farewell to Davina Walter following her period as Chairman and Director of Trust. I'm sure I speak for all shareholders in thanking her for her diligent oversight of the Company. During her period as Chairman your Company returned 363.8%, nearly 100% ahead of the benchmark which returned 266.2% over the same period. I hope I can build on this record of success for your Company during my period as Chairman.

Adoption of new Articles of Association

Resolution 15, which will be proposed as a special resolution at the Annual General Meeting in April, seeks shareholder approval to adopt new Articles of Association (the 'New Articles') in order to update the Company's current Articles of Association (the 'Existing Articles'). The proposed amendments being introduced in the New Articles primarily relate to changes in law and regulation and developments in market practice since the Existing Articles were adopted. The proposed amendments, if approved, include the possibility of the Company holding shareholder meetings whereby shareholders are not required to attend the meeting in person at a physical location. Shareholders should note that the Directors have no present intention of holding 'virtual-only' meetings. However, this amendment to the Existing Articles will facilitate shareholder attendance in situations where they are prevented, through laws or regulations, from attending at a physical location.

Proposed amendments also include an increase to the aggregate fees paid to Directors. This is in order to accommodate suitable transition between retiring and newly appointed Directors. Changes in response to the introduction of international tax regimes (notably to take into account the broader obligations under the Common Reporting Standard) requiring the exchange of information have also been included.

A summary of the principal amendments being introduced in the New Articles is set out in the appendix to the AGM Notice (on pages 78 to 79 of the Annual Report and Financial Statements). Other amendments, which are of a minor, technical or clarifying nature, have not been summarised in the appendix.

Annual General Meeting

The Company's Annual General Meeting will be held on Monday, 26th April 2021 at 2.30 p.m. at 60 Victoria Embankment, London EC4Y 0JP.

Despite the very encouraging news on the roll out of a vaccine, due to the COVID-19 restriction in place at the time of writing and ongoing public health concerns which are not likely to abate until well into 2021, the Board has reluctantly decided to limit attendance at the Annual General Meeting in person to Directors, their proxies and representatives from JPMorgan. This will ensure a quorum is in place and that the formal business of the Company will be able to proceed.

The Board is aware that many shareholders look forward to hearing the views of the Investment Managers and perhaps particularly this year, given the uncertainties that lie ahead for the US economy and markets. Accordingly, at the time of the AGM a webinar will be organised, which will involve a presentation from the Chairman of the Board and the Investment Managers, followed by a live question and answer session, all of which may be viewed at the time by registered participants. Shareholders are invited to register as participants to join the webinar and address any questions they have either by submitting questions during the webinar or in advance of the AGM via the 'Ask a Question' link on the Company's website www.jpmussmallercompanies.co.uk or via email to [e-mail]. Details on how to register as a participant for this event will be posted on the Company's website, or by requesting the details via the email address above.

As shareholders will not be able to attend the Annual General Meeting, the Board strongly encourages all shareholders to exercise their votes by completing and returning their proxy forms. This will ensure that the votes are registered.

If there are any changes to the arrangements for the Annual General Meeting, the Company will update shareholders through the Company's website and, if appropriate, through an announcement on the London Stock Exchange. The Board would like to thank shareholders for their understanding and co-operation at this difficult time. We very much hope that you and your families remain safe and well and look forward to meeting you at a future Annual General Meeting.

Outlook

Following the last tempestuous year there are reasons to be optimistic for the outlook for US smaller companies. The political backdrop in the US appears more stable. Alongside this, the flurry of positive news from a number of vaccine producers in late 2020 and early 2021 has been followed by the roll-out of wide scale vaccination programmes which should kick start much of the currently curtailed economic activity.

We expect this to act as a catalyst for a strong recovery in the US economy, which is already being reflected in consensus earnings estimates for 2021. Whilst this is, to some extent, already priced into the market, we remain excited by the prospects for US smaller companies where your investment managers' disciplined approach continues to identify high quality companies at attractive valuations.

David Ross

Chairman    

24th March 2021

INVESTMENT MANAGERS' REPORT

Market Review

With incredibly resilient performance, the Russell 2000 Index ended the tumultuous year of 2020 up +19.9% in US dollar terms and +16.0% in sterling terms.

After a strong close to 2019, solid US economic indicators continued to buoy the market at the beginning of the year. However, optimism was short-lived as emergence and spread of the COVID-19 pandemic resulted in swift action by governments to contain it, including broad economy-wide shutdowns. Mounting recessionary and liquidity concerns resulted in a swift sell-off in equities, driving the Russell 2000 to its worst quarterly performance in over 40 years in the first quarter. While extraordinary fiscal and monetary policy responses triggered a reversal in the market's rapid decline, volatile economic data along with swings between optimism and pessimism around the course of the pandemic, generated frequent bouts of market volatility in the second quarter.

Amid the pandemic, US GDP contracted throughout the first half of the year, ending the more than a decade-long expansion, before economic activity picked up in the third quarter. The market continued to rise, led by large cap growth stocks. In addition, investors cheered the Fed stance that they would be more accommodative for longer. However, September brought more uncertainty as a second wave of COVID-19 infections, the upcoming US presidential election and renewed lockdown measures took a toll on investor confidence.

The fourth quarter brought renewed investor optimism centred on news of a promising vaccine with an efficacy rate that was much higher than expected along with more clarity on the political front given Joe Biden's victory. The ensuing risk-on rally in small caps resulted in the best quarterly performance for the Russell 2000 Index on record, returning +32% in US dollar terms. During this run, there was a pronounced rotation into the most economically sensitive stocks, and value outperformed growth in all capitalisation ranges. Despite the exponential rise in positive COVID-19 cases toward the end of the year, investors anchored to positive vaccine developments and hopes for a continued reopening of the economy.

In terms of style and market capitalisation, growth significantly outperformed value and small stocks marginally outperformed their large cap peers for the year.

Performance

The Company's net asset value increased by 16.0% in 2020. The portfolio performed in line with its benchmark, the Russell 2000 Index (Net), which increased by 16.0% in sterling terms. Positive contributions from stock selection and gearing helped the Company's performance. However, at points throughout the year, most notably in the fourth quarter, the Company's performance failed to keep up with the rapid ascent of the benchmark. Low quality, high beta, non-earners, and highly leveraged stocks outperformed by a wide margin, a challenging backdrop for our investment style and process.

With regard to relative performance, stock selection in the financials, industrials and consumer discretionary sectors added the most value.

Within financials, our overweight position in Kinsale Capital Group proved beneficial. The specialty insurance company which is focused exclusively on the excess and surplus market, continues to execute well in a favourable market backdrop that features industry dislocation, capacity reduction in certain business lines among competitors, rising prices, and tightening terms and conditions in its policies. All of this should be beneficial to long term margins. Management has also remained bullish on above normal growth. Company fundamentals are still solid, but valuation is elevated.

Within consumer discretionary, our exposure to Pool Corp was the largest contributor for the year. The wholesale distributor of swimming pool supplies and equipment benefited greatly due to COVID-19. As people spend more time at home, they are spending more on pools. Many pools opened earlier than normal, driving the maintenance side of the business. Management is most excited about the prolonged staycation theme long term, which should continue to drive strong results.

Among individual names, our partial exposure to Catalent within health care was one of the largest contributors. Catalent is a leading provider of advanced drug delivery solutions to the biotech and pharma industries. Management's bullish comments at the J.P. Morgan Health Care Conference sent shares higher at the beginning of the year. Shares rallied further after the company announced that it was partnering with Johnson & Johnson to manufacture its COVID-19 vaccine candidate in the US. Toward the end of the year, the company reported fourth quarter 2020 financial results that were at the high-end of its preannouncement, and above consensus. The company also provided preliminary full year 2021 guidance that was well above street expectations. We sold the stock in November due to market capitalisation.

On the other hand, our stock selection in the health care, technology and consumer staples sectors proved lacklustre.

Within healthcare, our lack of exposure to Teladoc detracted from relative performance. The company provides routine medical treatment through phone and video consultations, and befitted greatly during this past year given COVID-19. The stock returned over 100% which was more than double the return of the health care sector in the Russell 2000. We did not hold the name as it did not meet our investment criteria.

Within industrials, our overweight position in Douglas Dynamics was the largest performance detractor for the year. The manufacturer and uplifter of work truck attachments and equipment experienced another winter of lower snowfall and warmer temperatures. COVID-19 has significantly amplified these headwinds with dealers prioritizing capital conservation. Additionally, production shutdowns in the second half of March were a drag on earnings. We still like the stock long term and have confidence in management's ability to protect cash flow in tough environments.

Our partial exposure to Patterson UTI Energy was one of the largest detractors during the year. In the first quarter, with oil prices having collapsed amid short term demand weakness due to COVID-19, and a globally weaker supply-demand balance with the Russia-Saudi Arabia price war, shares of the company fell sharply. Given the many macro risks affecting the energy sector, we believe there are better areas to allocate capital.

PERFORMANCE ATTRIBUTION

YEAR ENDED 31ST DECEMBER 2020

	%	%
Contributions to total returns
Benchmark return		16.0
Sector allocation	0.5
Stock selection	-0.4
Investment Managers' contribution		0.1
Portfolio total return		16.1
Gearing	0.9
Management fee/other expenses	-1.0
Share buyback/issuance	0.0
Other effects		-0.1
Return on net assetsA		16.0
Return to shareholdersA		15.5

Source: Wilshire, JPMAM and Morningstar.

All figures are on a total return basis.

Performance attribution analyses how the Company achieved its recorded performance relative to its benchmark.

A  Alternative Performance Measure ('APM').

A glossary of terms and APMs is provided on pages 80 and 81.

Top Contributors and Detractors to Performance vs Russell 2000 Index

Top Contributors	Impact (%)	Top Detractors	Impact (%)
Pool	1.31	Douglas Dynamics	-0.86
Catalent	1.28	Patterson-UTI Energy	-0.81
West Pharmaceutical	1.02	Cinemark	-0.71
Kinsale Capital Group	0.81	Teladoc Health*	-0.58
Generac	0.70	Cushman & Wakefield	-0.52

*Indicates stock was not held during part or all of the analysis period.

Source: Wilshire and JPMAM

Portfolio Positioning

With regard to our portfolio positioning, we continue to focus on finding companies with durable franchises, good management teams and stable earnings that trade at a discount to intrinsic value. We continue to believe that smaller companies are worth investing in for long term investors as they include innovative companies that serve market niches and thereby can be a way to get in early on innovation.

The volatile market conditions over the course of 2020 resulted in a higher level of turnover as the investment managers repositioned the portfolio to mitigate risks and to take advantage of emerging opportunities. Throughout the year, we have been focused on upgrading the quality of the portfolio across sectors. We have used short term bounces to exit lower conviction names and have been able to buy names that we have long admired due to more attractive valuations. We were able to find more new ideas than usual, adding 28 names to the portfolio. However, the portfolio's positioning remains relatively unchanged. Our main exposures are in the industrials and financials sectors making up over 40% of the portfolio. These sectors also represent our top sector overweights.

We have continued to decrease our overweight exposure to consumer discretionary and have added to financials with attractive valuations. However, recently, we have been selectively taking profits in bank stocks, as they have performed well on the back of positive vaccine news. In consumer discretionary, we have taken down our exposure in large market capitalisation and leisure related names on strong performance. On the other hand, our largest relative underweight remains in the health care space due to a lack of exposure to biotechnology stocks, which is approximately 11% weight in the index. We struggle to find biotechnology names that meet both our quality and valuation investment criteria as so many of them have no earnings or even no sales. Within health care we have found new ideas in the medical equipment and services segments.

Market Outlook

While we believe the economy is poised to recover in the coming quarters, we believe a higher-than-average period of uncertainty may persist until there is a meaningful decrease in positive COVID-19 cases and a robust vaccination roll out. Given the increase in volatility and rapid changes in market leadership, we think selectivity will be critical from here. We are staying true to our process, focusing on fundamentals and quality businesses.

We expect a strong rebound in company earnings growth in 2021, though we acknowledge a wider range of potential outcomes than normal given uncertainty related to the ongoing pandemic. Aside from news around COVID-19, the trajectory of key economic indicators, including employment, as well as the outlook for fiscal and monetary support, will guide investor sentiment going forward.

Don San Jose

Jon Brachle

Dan Percella

Investment Managers    

24th March 2021

PRINCIPAL AND EMERGING RISKS

The Directors confirm that they have carried out a robust assessment of the principal and emerging risks facing the Company, including those that would threaten its business model, future performance, solvency, liquidity or reputation. The risks identified and the ways in which they are managed or mitigated are summarised below:

With the assistance of the Manager, the Board has drawn up a risk matrix, which identifies the principal and emerging risks to the Company. These risks are reviewed and discussed on a regular basis by the Board and fall broadly under the following categories:

• Investment and Strategy

  An inappropriate investment strategy, for example excessive concentration of sector selection or the level of gearing, may lead to underperformance against the Company's benchmark index and peer companies, which may result in the Company's shares trading on a wider discount. The Board manages these risks by diversification of investments through its investment restrictions and guidelines which are monitored and reported on. The Manager, JPMF, provides the Directors with timely and accurate management information, including performance data and attribution analyses, revenue estimates, liquidity reports and shareholder analyses. The Board monitors the implementation and results of the investment process with the investment managers, who participate at all Board meetings, and reviews data which show statistical measures of the Company's risk profile. The investment managers employ the Company's gearing tactically, within a strategic range set by the Board. In addition to regular Board reviews of investment strategy, the Board holds a separate meeting devoted to strategy each year.

• Loss of Investment Team or Investment Managers

A sudden departure of the investment managers, or several members of the investment management team could result in a short-term deterioration in investment performance. The Manager takes steps to reduce the likelihood of such an event by ensuring appropriate succession planning and the adoption of a team-based approach.

• Discount

A disproportionate widening of the discount could result in a loss of value for shareholders. In order to manage the Company's discount, which can be volatile, the Company operates a share repurchase programme.

• Market

Market risk arises from uncertainty about the future prices of the Company's investments. It represents the potential loss that the Company might suffer through holding investments in the face of negative market movements. The Board considers asset allocation, stock selection and levels of gearing on a regular basis and has set investment restrictions and guidelines, which are monitored and reported on by JPMAM. The Board monitors the implementation and results of the investment process with the Manager.

• Accounting, Legal and Regulatory

In order to qualify as an investment trust, the Company must comply with Section 1158 of the Corporation Tax Act 2010 ('Section 1158'). Details of the Company's approval are given under 'Structure of the Company' above. Should the Company breach Section 1158, it may lose investment trust status and, as a consequence, gains within the Company's portfolio could be subject to Capital Gains Tax. The Section 1158 qualification criteria are monitored continually by JPMAM and the results reported to the Board each month. The Company must also comply with the provisions of the Companies Act 2006 and, since its shares are listed on the London Stock Exchange, the FCA Listing Rules and Disclosure Guidance and Transparency Rules ('DTRs'). A breach of the Companies Act could result in the Company and/or the Directors being fined or the subject of criminal proceedings. Breach of the FCA Listing Rules or DTRs could result in the Company's shares being suspended from listing which in turn would breach Section 1158. The Board relies on the services of its Company Secretary, the Manager, and its professional advisers to ensure compliance with the Companies Act 2006 and the FCA Listing Rules and DTRs.

• Corporate Governance and Shareholder Relations

Details of the Company's compliance with Corporate Governance best practice, including information on relations with shareholders, are set out in the Corporate Governance report on page 29 of the Annual Report and Financial Statements.

• Operational

Disruption to, or failure of, the Manager's accounting, dealing or payments systems or the depositary's or custodian's records could prevent accurate reporting and monitoring of the Company's financial position. The Company has appointed Bank of New York Mellon (International) Limited to act as its depositary, responsible for oversight of the custody of the Company's assets and for monitoring its cash flows.

Details of how the Board monitors the services provided by the Manager and its associates and the key elements designed to provide effective internal control are included within the Risk Management and Internal Control section of the Corporate Governance report on page 33 of the Annual Report and Financial Statements.

• Cybercrime

The threat of cyber attack, in all its guises and including cyber risk and risk of data loss, is regarded as at least as important as more traditional physical threats to business continuity and security. JPMF has assured Directors that the Company benefits directly or indirectly from all elements of JPMorgan's Cyber Security programme. The information technology controls around the physical security of JPMorgan's data centres, security of its networks and security of its trading applications are tested by independent reporting accountants and reported every six months against the AAF Standard. Equiniti, the Company's Registrar, also produces an AAF report which is reported on at the Company's Audit Committee meeting.

• Foreign currency

The Company has exposure to foreign currency as part of the risk reward inherent in a company that invests overseas. The income and capital value of the Company's investments can be affected by exchange rate movements as the majority of the Company's assets and income are denominated in currencies other than sterling which is the reporting currency. The Company's loan facility is denominated in US dollars.

The Board has the authority to reduce or eliminate the exposure to fluctuating currencies through the use of currency hedging. It reviews its policy on this matter regularly.

• Financial

The financial risks faced by the Company include market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk. Further details are disclosed in note 21 to the financial statements on page 64 of the Annual Report and Financial Statements.

• Political and Economic

Changes in financial or tax legislation, including in the UK as a result of Brexit, and in the European Union and the US, may adversely affect the Company. The Manager makes recommendations to the Board on accounting, dividend and tax policies and the Board seeks external advice where appropriate. In addition, the Company is subject to administrative risks, such as the imposition of restrictions on the free movement of capital. These risks are discussed by the Board on a regular basis.

• Climate Change

Climate change, which barely registered with investors a decade ago, has today become one of the most critical issues confronting asset managers and their investors. Investors can no longer ignore the impact that the world's changing climate will have on their portfolios, with the impact of climate change on returns now inevitable.

The Company's investment process integrates consideration of environmental, social and governance factors into decisions on which stocks to buy, hold or sell. This includes the approach investee companies take to recognising and mitigating climate change risks. The Board is also considering the threat posed by the direct impact of climate change on the operations of the Manager and other major service providers. As extreme weather events become more common, the resiliency, business continuity planning and the location strategies of our services providers will come under greater scrutiny.

• Global Pandemics

The recent emergence and spread of coronavirus (COVID-19) has raised the emerging risk of global pandemics, in whatever form a pandemic takes. COVID-19 poses a significant risk to the Company's portfolio. At the date of this report, the virus has contributed to recent market volatility. However, the Board and Manager expect that the portfolio's holdings will not suffer a material long-term impact from this particular pandemic. Should the virus spread more aggressively or become more virulent, it may present risks to the operations of the Company, its Manager and other major service providers.

The Board and the Manager will continue to monitor developments as they occur and seek to learn lessons which may be of use in the event of future pandemics. These are likely to be more common in the future as the effects of Climate Change, rising populations and global travel increase the risk of new zoonotic infections arising in human populations and spreading across the globe.

TRANSACTIONS WITH THE MANAGER

Details of the management contract are set out in the Directors' Report on page 27 of the Annual Report and Financial Statements. The management fee payable to the Manager for the year was £1,643,000 (2019: £1,781,000) of which £nil (2019: £nil) was outstanding at the year end.

During the year £nil (2019: £21,000), including VAT, was payable to the Manager for the administration of savings scheme products, of which £nil (2019: £nil) was outstanding at the year end.

Included in administration expenses in note 6 on page 58 of the Annual Report and Financial Statements are safe custody fees amounting to £2,000 (2019: £2,000) payable to JPMorgan Chase Bank, N.A. of which £nil (2019: £nil) was outstanding at the year end.

The Company also holds cash in the JPMorgan US Dollar Liquidity Fund, which is managed by JPMorgan. At the year end this was valued at £6.0 million (2019: £4.6 million). Income amounting to £68,000 (2019: £195,000) was receivable during the year of which £nil (2019: £nil) was outstanding at the year end. The JPMorgan US Dollar Liquidity Fund does not charge a fee and the Company does not invest in any other investment fund managed or advised by JPMorgan.

Handling charges on dealing transactions amounting to £6,000 (2019: £5,000) were payable to JPMorgan Chase Bank, N.A. during the year of which £1,000 (2019: £1,000) was outstanding at the year end.

At the year end, total cash of £3,000 (2019: £10,000) was held with JPMorgan Chase Bank, N.A. A net amount of interest of £nil (2019: £nil) was receivable by the Company during the year from JPMorgan Chase Bank, N.A of which £nil (2019: £nil) was outstanding at the year end.

Transactions with related parties

Full details of Directors' remuneration and shareholdings can be found on page 39 of the Annual Report and Financial Statements and in note 6 on page 58 of the Annual Report and Financial Statements.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare the Annual Report and Financial Statements for each financial year. Under that law, the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising Financial Reporting Standard 102, the Financial Reporting Standard applicable in the UK and Republic of Ireland ('FRS 102') and applicable law). Under Company law the Directors must not approve the Financial Statements unless they are satisfied that taken as a whole, the Annual Report and Financial Statements are fair, balanced and understandable, provide the information necessary for shareholders to assess the Company's position and performance, business model and strategy and that they give a true and fair view of the state of affairs of the Company and of the net return or loss of the Company for that period. 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 estimates that are reasonable and prudent;

•   state whether applicable UK Accounting Standards, comprising FRS 102, have been followed, subject to any material departures disclosed and explained in the financial statements;

•   prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Company will continue in business; and

•   notify the Company's shareholders in writing about the use, if any, of disclosure exemptions in FRS 102 in the preparation of the financial statements

and the Directors confirm that they have done so.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Under applicable law and regulations the Directors are also responsible for preparing a Directors' Report and Directors' Remuneration Report that comply with that law and those regulations.

Each of the Directors, whose names and functions are listed on pages 25 and 26 of the Annual Report and Financial Statements confirm that, to the best of their knowledge:

•   the financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law), give a true and fair view of the assets, liabilities, financial position and return or loss of the Company; and

•   the Strategic Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal and emerging risks and uncertainties that it faces.

The Board confirms that it is satisfied that the Annual Report and Financial Statements taken as a whole are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's position and performance, business model and strategy.

The Board also confirms that it is satisfied that the Strategic Report and Directors' Report include a fair review of the development and performance of the business, and the Company, together with a description of the principal risks and uncertainties that it faces.

The Financial Statements are published on the www.jpmussmallercompanies.co.uk website, which is maintained by the Manager. The maintenance and integrity of the website maintained by the Manager is, so far as it relates to the Company, the responsibility of the Manager. The work carried out by the Auditors does not involve consideration of the maintenance and integrity of this website and, accordingly, the Auditor accepts no responsibility for any changes that have occurred to the accounts since they were initially presented to the website. The accounts are prepared in accordance with UK legislation, which may differ from legislation in other jurisdictions.

For and on behalf of the Board

David Ross

Chairman

24th March 2021

STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31ST DECEMBER 2020

	2020			2019
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Gains on investments held at fair value
through profit or loss	-	30,977	30,977	-	40,506	40,506
Net foreign currency gains on cash
and loans	-	213	213	-	492	492
Income from investments	2,894	-	2,894	2,828	-	2,828
Interest receivable	68	-	68	195	-	195
Gross return	2,962	31,190	34,152	3,023	40,998	44,021
Management fee	(329)	(1,314)	(1,643)	(356)	(1,425)	(1,781)
Other administrative expenses	(402)	-	(402)	(521)	-	(521)
Net return before finance costs
and taxation	2,231	29,876	32,107	2,146	39,573	41,719
Finance costs	(55)	(217)	(272)	(100)	(398)	(498)
Net return before taxation	2,176	29,659	31,835	2,046	39,175	41,221
Taxation	(416)	-	(416)	(456)	-	(456)
Net return after taxation	1,760	29,659	31,419	1,590	39,175	40,765
Return per share	3.00p	50.59p	53.59p	2.76p	67.96p	70.72p

STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31ST DECEMBER 2020

	Called up		Capital
	share	Share	redemption	Capital	Revenue
	capital	Premium	reserve	reserves1	reserve1	Total
	£'000	£'000	£'000	£'000	£'000	£'000
At 31st December 2018	1,445	13,291	1,851	140,543	1,701	158,831
Shares reissued from Treasury	-	101	-	1,206	-	1,307
Repurchase of shares into Treasury	-	-	-	(1,206)	-	(1,206)
Net return for the year	-	-	-	39,175	1,590	40,765
Dividends paid in the year	-	-	-	-	(1,445)	(1,445)
At 31st December 2019	1,445	13,392	1,851	179,718	1,846	198,252
Issue of new Ordinary shares	54	8,096	-	-	-	8,150
Repurchase of shares into Treasury	-	-	-	(972)	-	(972)
Reissue of shares from Treasury	-	482	-	972	-	1,454
Net return for the year	-	-	-	29,659	1,760	31,419
Dividends paid in the year	-	-	-	-	(1,464)	(1,464)
At 31st December 2020	1,499	21,970	1,851	209,377	2,142	236,839

¹   These reserves form the distributable reserves of the Company and may be used to fund distributions to investors.

STATEMENT OF FINANCIAL POSITION

AS AT 31ST DECEMBER 2020

	2020	2019
	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	251,210	208,253
Current assets
Debtors	612	655
Cash and cash equivalents	5,985	4,605
	6,597	5,260
Creditors: amounts falling due within one year	(20,967)	(15,260)
Derivative financial liabilities	(1)	(1)
Net current liabilities	(14,371)	(10,001)
Total assets less current liabilities	236,839	198,252
Net assets	236,839	198,252
Capital and reserves
Called up share capital	1,499	1,445
Share premium	21,970	13,392
Capital redemption reserve	1,851	1,851
Capital reserves	209,377	179,718
Revenue reserve	2,142	1,846
Total shareholders' funds	236,839	198,252
Net asset value per share	394.9p	343.0p

STATEMENT OF CASH FLOWS

For the year ended 31st December 2020

	2020	2019
	£'000	£'000
Net cash outflow from operations before dividends and interest	(2,070)	(2,297)
Dividends received	2,458	2,376
Interest received	68	195
Overseas tax recovered	41	23
Interest paid	(323)	(425)
Net cash outflow from operating activities	174	(128)
Purchases of investments	(105,374)	(46,362)
Sales of investments	96,021	47,557
Settlement of foreign currency contracts	4	14
Net cash (outflow)/inflow from investing activities	(9,349)	1,209
Dividends paid	(1,464)	(1,445)
Issue of Ordinary shares	8,136	-
Shares reissued from Treasury	1,454	921
Repurchase of shares into Treasury	(972)	(1,206)
Drawdown of bank loan	3,800	-
Net cash inflow/(outflow) from financing activities	10,954	(1,730)
Increase/(decrease) in cash and cash equivalents	1,779	(649)
Cash and cash equivalents at start of year	4,605	5,382
Exchange movements	(399)	(128)
Cash and cash equivalents at end of year	5,985	4,605
Increase/(decrease) in cash and cash equivalents	1,779	(649)
Cash and cash equivalents consist of:
Cash and short term deposits	3	10
Cash held in JPMorgan US Dollar Liquidity Fund	5,982	4,595
Total	5,985	4,605

NOTES TO THE FINANCIAL STATEMENTS

1.  Accounting policies

  Basis of accounting

The financial statements are prepared under the historical cost convention, modified to include fixed asset investments at fair value, and in accordance with the Companies Act 2006, United Kingdom Generally Accepted Accounting Practice ('UK GAAP'), including 'the Financial Reporting Standard applicable in the UK and Republic of Ireland' ('FRS 102') and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (the 'SORP') issued by the Association of Investment Companies in October 2019.

All of the Company's operations are of a continuing nature.

The financial statements have been prepared on a going concern basis. The disclosures on going concern on page l of the Audit Committee Report form part of these financial statements.

The policies applied in these financial statements are consistent with those applied in the preceding year.

2.  Return per share

	2020	2019
	£'000	£'000
Revenue return	1,760	1,590
Capital return	29,659	39,175
Total return	31,419	40,765
Weighted average number of shares, excluding Treasury shares, in issue during the year	58,620,594	57,641,214
Revenue return per share	3.00p	2.76p
Capital return per share	50.59p	67.96p
Total return per share	53.59p	70.72p

3.   Dividends

(a)  Dividends paid and declared

	2020	2019
	£'000	£'000
Dividend paid
2019 final dividend of 2.5p (2018: 2.5p) paid to shareholders in May 2020	1,464	1,445
Dividend declared
2020 final dividend of 2.5p (2019: 2.5p) declared	1,499	1,445

All dividends paid and declared in the year have been funded from the revenue reserve.

The final dividend has been declared in respect of the year ended 31st December 2020. In accordance with the accounting policy of the Company, this dividend will be reflected in the accounts for the year ending 31st December 2021.

(b)   Dividends for the purposes of Section 1158 of the Corporation Tax Act 2010 ('Section 1158')

The requirements of Section 1158 are considered on the basis of dividends declared in respect of the financial year as shown below. The revenue available for distribution by way of dividend for the year is £1,759,000 (2019: £1,590,000).

	2020	2019
	£'000	£'000
2020 final dividend of 2.5p (2019: 2.5p) declared	1,499	1,445

4.  Net asset value per share

	2020	2019
Net assets (£'000)	236,839	198,252
Number of shares in issue	59,969,382	57,791,928
Net asset value per share	394.9p	343.0p

5.  Status of results announcement

2019 Financial Information

The figures and financial information for 2019 are extracted from the published Annual Report and Financial Statements for the year ended 31st December 2019 and do not constitute the statutory accounts for that year. The Annual Report and Financial Statements have been delivered to the Registrar of Companies and included the Report of the Independent Auditors which was unqualified and did not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006.

2020 Financial Information

The figures and financial information for 2020 are extracted from the Annual Report and Financial Statements for the year ended 31st December 2020 and do not constitute the statutory accounts for the year. The Annual Report and Financial Statements include the Report of the Independent Auditors which is unqualified and does not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006. The Annual Report and Financial Statements will be delivered to the Register of Companies in due course.

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

JPMORGAN FUNDS LIMITED

24th March 2021

For further information, please contact:

Nira Mistry

For and on behalf of

JPMorgan Funds Limited

020 7742 4000

ENDS

A copy of the Annual Report and Financial Statements will shortly be submitted to the National Storage Mechanism and will be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism

The annual report will shortly be available on the Company's website at www.jpmussmallercompanies.co.uk where up-to-date information on the Company, including daily NAV and share prices, factsheets and portfolio information can also be found.

 

END

 

 

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