Performance Review 2006
Alexander Fitzalan Howard & Richard Webb: "The German equity market rose in 2006 as the economic recovery and corporate restructuring supported earnings. It was a positive year for our value and growth driven process, with the JPM Germany Equity Fund outperforming its benchmark. The largest positive contirbutor was an overweight position in industrial metals and mining as this sector delivered the strongest absolute returns. Strong stock selection in industrial engineering was also a positive contributor, with overweights in Demag Cranes and Man providing strong boosts to relative returns."
Performance Review 2007
Alexander Fitzalan Howard & Richard Webb: "After a benign financial environment in the first half of the 2007, the second half of the year saw some of the most dramatic events in many years as the sub-prime crisis hit. Although the market rose over the year, this gain belied a volatile year with numerous major reversals. Many fund managers struggled with the ever changing environment. Unfortunately the JPM Germany Equity Fund was no exception, performing behind its benchmark over the year. This was primarily driven by the poor performance of the value style that we seek to invest in, with growth failing to provide a compensating return. At the sector level the fund benefited from strong stock selection in construction. However stock selection in the chemical and travel & leisure sectors detracted, as did an underweight position in electronics."
Performance Review 2008
Alexander Fitzalan Howard & Richard Webb: "Markets fell heavily over 2008 as the financial crisis continued. On a relative level, the first half of 2008 was positive for the JPM Germany Equity Fund as stock prices were driven by fundamentals. However the collapse of confidence in the financial system worldwide saw massive deleveraging in the second half of the year. This led to the underperformance of both the value and growth styles we invest in from the third quarter onwards. The net result saw the JPM Germany Fund perform marginally ahead of its benchmark over the year. The largest detractors at the sector level were an underweight position in banks and stock selection in the heath care sector."
Performance Review 2009
Alexander Fitzalan Howard & Richard Webb: "Over 2009 a recovery in the macro environment was reflected in stock prices, which bounced powerfully from the March lows. The major inflection in March saw the JPM Germany Fund struggle to perform as we experienced the sharpest style rotation in 25 years and market leadership changed from defensive to cyclical stocks. Over the year as a whole the Fund performed behind its benchmark. The largest boost to returns came from our stock selection in autos (driven largely by an underweight position in Volkswagen), but this was offset by losses in chemicals, healthcare, and general industrials."
Performance Review 2010
Alexander Fitzalan Howard & Richard Webb: "The German market performed strongly in 2010, as its export sector was boosted by improving global growth and the competitive benefits of the weakened Euro. The JPM Germany Equity Fund outperformed, particularly boosted by the strength of growth as an investment style over the year. Some of the strongest sectors included technology and chemicals. The largest stock contributors in these sectors were Dialog Semiconductor, which continued to report positive results, and Lanxess, which beat analyst expectations on the back of emerging market demand."
Performance since 2006
Alexander Fitzalan Howard & Richard Webb: "The fund benefits from the consistent management of highly experienced portfolio managers. Alexander Fitzalan Howard and Richard Webb have been managing the JPM Germany Equity Fund since its inception more than ten years ago.
This consistent management and strong stock selection has led to very strong returns against both the benchmark and competition. The Fund ranks in the first quartile of funds over 1, 3, and 5 years to 31 December 2010 (Morningstar offshore Germany Large Cap universe)."
Investment Process and Strategy – How does the Fund Manager Invest?
Alexander Fitzalan Howard & Richard Webb: "The JPM Germany Equity Fund applies a disciplined bottom up investment approach focusing on identifying attractive value and growth stocks. Intuitively you would expect an investor to prefer a cheap stock over an expensive one and a strongly growing stock over a stock with weak growth. This intuition is supported by substantial academic research, which shows that cheap stocks outperform expensive stocks and fast growing stocks outperform slow growing stocks.
The portfolio’s composition is therefore driven by our bottom up selection of the most attractive value and growth stocks. At present we are finding a number of interesting opportunities in a range of sectors. Examples include the likes of Dialog Semiconductor and Infineon Technologies in the technology hardware sector. Both of these stocks are seeing strong earnings upgrades following positive results during the 4th quarter of last year. In the automotive sector we hold the likes of Volkswagen and BMW who are seeing strong demand for luxury cars from emerging economies. Despite strong share price movements over the last year both of these companies still look cheap due to the growth in earnings keeping pace with the appreciation in their share price. Finally within the chemical sector we hold the likes of Linde and Lanxess who are both reporting earnings ahead of analysts’ expectations as emerging markets continue to display strong growth."
Investment Outlook
Alexander Fitzalan Howard & Richard Webb: "Since the lows in early 2009, Germany has seen its economy and business sentiment strengthen. The initial driver of this was the export sector, boosted by the competitive Euro, improving global growth, and demand for Germany’s market leading brands in areas such as autos, engineering and chemicals. These catalysts are all still in place to continue to drive growth going forward.
Export growth is also feeding through to Germany’s domestic economy. Strong results from many Germany companies, together with lower unemployment, have filtered through to its workers. Consumer confidence is at record highs and domestic growth is boosted as consumers become more comfortable increasing their own expenditure.
Sovereign debt issues remain a concern, although aggressive policy action has largely seen these contained. Germany’s export sector has been given a strong competitive boost by the Euro weakness driven by these peripheral European debt concerns. Currently the biggest worry is an electoral backlash against the plans for a bail-out, but if this keeps the Euro under pressure, then the exporters will continue to benefit.
Despite the recent strength of German equities, valuations remain attractive, well below long term averages."
