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This trust’s 50 per cent gain proves that a simple investing approach pays off in the long run

Warren Buffett - Lucas Jackson/Retuers
Warren Buffett - Lucas Jackson/Retuers

Successful investing does not need to be complicated. Indeed, buying companies with solid balance sheets and clear competitive advantages when they trade at fair prices has historically produced stunning returns over the long run.

However, it is not uncommon for investors to muddle this most simple of processes. Notably, some investors attempt to time the market by trying to predict the optimum moment to buy and sell stocks.

In Questor’s view, no investor can accurately and consistently forecast short-term stock market movements to successfully time the market. After all, share price fluctuations are largely based on random news flow and highly unpredictable market sentiment over the short run.

For example, this column’s advice to purchase the JPMorgan American investment trust in December 2019 produced a 23pc capital loss within just four months. It suffered, as all companies did at the time, from the effects of the wholly unforeseeable global pandemic during the first quarter of 2020.

Since then, though, it has produced a stunning recovery so that it now trades 50pc higher than at the time of our original “buy” recommendation.

This is 45 percentage points greater than the FTSE 100’s return and 24 percentage points higher than the S&P 500’s return, which is the trust’s benchmark, over the same period. It has also outperformed its benchmark over the past three, five and 10 years.

Even after its stunning performance, the trust continues to offer excellent long-term capital growth potential. Its largest positions comprise high-quality companies that are likely to generate growing profits as the world economy’s prospects improve.


For example, its 10 largest holdings include companies such as Microsoft, Apple, Mastercard and Berkshire Hathaway that have clear, longstanding and sustainable competitive advantages over rivals.

They also have sound financial positions through which to overcome an uncertain economic period and enhance their market positions relative to sector peers.

Although the IMF forecasts that the US economy will grow by just 1.4pc this year and 1pc next year, the trust’s focus on global stocks means it is closely aligned with the world economy. It is expected to grow by 2.9pc this year and by a further 3.1pc next year as global inflation cools and hawkish monetary policies are eased.

The trust trades at a modest 4pc discount to net asset value. This is in line with its average over the past five years and suggests it offers good value for money. Its sector weightings do not vastly differ from those of the index, while it focuses mainly on large-cap stocks.

Around 46pc of its positions have market capitalisations in excess of $100bn and only 7pc of holdings have market values below $10bn. A gearing ratio of around 5pc means the trust’s returns will be magnified in a rising market as investor confidence gradually recovers from today’s low ebb.

A bottom-up approach that focuses on company fundamentals is central to the trust’s strategy. Its holdings include “growth” and “value” stocks in a roughly equal split, with each area having its own portfolio manager.

This means it is not unduly affected by changing economic and investment trends, such as the effect of interest rate rises on growth stocks and the unpopularity of value stocks among investors during periods of buoyant economic performance.

Although its “growth” portfolio manager is set to retire next year, he is being replaced by a colleague who has worked closely alongside him for many years. The trust’s focus on capital growth, rather than income, is unlikely to change. Currently, its 1pc dividend yield highlights that income-seeking investors should look elsewhere.

So, too, should investors seeking to time the stock market’s current woes so that they buy stocks at the perfect moment. After all, an ongoing banking “crisis”, rapidly rising interest rates and extreme inflation highlight the magnitude of uncertainty that is currently present. Any of those risks, plus unforeseen events such as the emergence of a global pandemic which occurred shortly after our original recommendation of the JPMorgan American investment trust, could prompt a fast-paced share price decline in the short run.

However, for investors who want to keep things simple in terms of buying high-quality companies at attractive prices for the long term, now is a worthwhile time to purchase the trust. It has an excellent track record, a sound strategy and a modest discount that suggests further capital growth is ahead in the coming years.

Questor says: buy
Ticker: JAM
Share price at close: 702p

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