JPMorgan European Discovery Trust plc (LON:JEDT) has announced its February commentary.
Month in review
As of 28/02/2023
- The trust underperformed its benchmark in February.
- Positive contributors to relative returns included an underweight position in real estate investment & services and pharmaceuticals & biotechnology.
- Detractors included stock selection in electronic & electrical equipment and stock selection and an overweight position in media.
- At a stock level, an overweight position in Verallia, a French glass manufacturer, outperformed as the company benefitted from lower gas prices and the shortage of glass which helped its pricing power.
- An overweight position in Sydbank, a Danish bank, outperformed as the company continued to upgrade its net interest income guidance following increases in policy rates by central banks
- On the other hand, an overweight position in NKT, a Danish cable manufacturer, underperformed. It will likely need more financing than expected to achieve its ambitious growth plans.
- An overweight position in Prysmian, an Italian cable manufacturer, also underperformed as investors were concerned about a potential slowdown in its construction-related division.
Looking ahead
As of 28/02/2023
- Consumer spending is expected to be hampered by a continued fiscal drag and falling household savings. A meaningful decline in government spending relative to revenues could reduce aggregate demand within the economy. Business fixed investment will also likely be weak in 2023, reflecting higher interest rates and declining corporate margins. Therefore, current economic improvements could be a flattering measure of economic momentum, and the picture might look very different by the middle of the year.
- However, if we have a recession, it is likely to be a mild one as pent-up demand for labour, a lack of over-building in the most cyclical sectors of the economy, healthy bank balance sheets and an absence, so far, of some new macroeconomic shock seem to provide some protection against a worse outcome.
- The year 2022 turned out to be very tough for investors, with heightened volatility and a painful sell-off in financial assets. While risks around the growth outlook are high for 2023, they are also much better reflected in equity valuations. We believe equity markets could now offer an attractive entry point to the long-term investor.
JPMorgan European Discovery Trust plc (LON:JEDT) is an investment trust company. The Investment Trust JEDT objective is to achieve capital growth from a portfolio of quoted smaller companies in Europe, excluding the United Kingdom.
