Investors looking for growth in 2019 and beyond may want to consider JPMorgan US Smaller Companies Investment Trust (LSE: JUSC) and Fidelity China Special Situations (LSE: FCSS). They have several things in common that make them attractive investments in my view, and I’d be happy to buy shares in them at today’s prices.
Powerhouse economies
Each trust is focused on a powerhouse economy — indeed, the two biggest economies in the world. China’s growth rate has slowed recently, as it transitions away from decades of colossal infrastructure investment towards consumption. However, an IMF forecast of 6.2% growth for 2019 is still impressive. The US doesn’t come near this, but its forecast growth of 2.5% still outstrips developed markets in the West, like the UK (1.5%).
The scale and growth of the US and Chinese economies provides a favourable backdrop for our investment trust managers to root out dynamic growth businesses.
Focus
As you can see from the breakdown of their portfolios in the table below, both trusts are tilted towards investing in companies with market capitalisations of less than £5bn.
| Market cap (£bn) | JPMorgan (%) | Fidelity (%) |
| >10 | 1 | 26 |
| 5<>10 | 17 | 8 |
| 1<>5 | 75 | 30 |
| <1 | 7 | 33 |
| Unlisted | 0 | 3 |
Smaller companies generally have higher growth potential. Furthermore, in the case of the US and China, they have huge domestic markets to expand in. For example, a JPMorgan trust holding, Eastgroup Properties, is focused on developing and acquiring distribution facilities across the US ‘sunbelt’ states.
As I mentioned earlier, China’s economy is shifting towards domestic consumption, with the numbers and spending power of its middle class increasing rapidly. The Fidelity trust is very much focused on products and services that cater for this growth within the country. China MeiDong Auto, for example, is a car dealership, handling the likes of Lexus, BMW and Porsche.
Of course, there are companies in both trusts that aren’t focused solely on their domestic markets. But a good many are, or largely are, and with plenty of growth to go for on home soil, I’m not too concerned by Donald Trump’s trade war with Beijing.
Mis-priced quality companies
Another thing the two trusts have in common is that they lean towards businesses with strong management teams and competitive advantages that are profitable and cash-generative. You’ll find little, if anything, in the way of speculative (‘blue-sky’) companies — oil explorers, biotechs and so on — in their portfolios.
I like the trusts’ focus on quality businesses and their bias to smaller companies, which are less well-researched and lead to greater opportunities for mis-pricing. Furthermore, the management teams of both trusts have delivered returns above the average of their sector peers.
Performance
Over the last 10 years, the JPMorgan trust has posted a net asset value (NAV) total return of 430% versus a North American Smaller Companies sector return of 312%. Over five years the numbers are 93% versus 84%.
The Fidelity trust hasn’t been around long enough to notch up a 10-year record. Over five years, it’s delivered a NAV total return of 106% versus an Asia Pacific sector return of 99%.
I think both trusts have a lot going for them, and that they could serve growth investors well in 2019 and beyond.
