Katie Standley, Managing Director, at J.P. Morgan Asset Management, commented on the July performance of the trust and the economic outlook as the recovery continues to take shape in 2021:
Month in review
The trust outperformed its benchmark in July.
Positive contributors to relative returns included stock selection as well as sector overweight positions in software & computer services and medical equipment & services.
Detractors included stock selection as well as sector overweight positions in construction & materials and electronic & electrical equipment.
At a stock level, an overweight position in D’Ieteren Group, the Belgian auto distribution and vehicle glass repair company, contributed positively to returns after the company announced the acquisition of a stake in TVH Parts, and after they sold a stake in their glass-repair company for a higher-than-expected valuation.
Our overweight position in Eckert & Ziegler, the German manufacturer of low-level radiation equipment for the pharmaceutical industry, also contributed positively to performance after the company reported stronger-than-expected half-year earnings and upgraded its full-year outlook.
On the other hand, our overweight position in Scatec, the Norwegian renewable energy producer, contributed negatively due to an unexpected drop in its power production in the Philippines.
An overweight position in Signify, the Dutch manufacturer of lighting products, contributed negatively because its recent growth has been hampered by chip shortages.
Looking ahead
Earnings growth should be strong in 2021, but could slow as profit margins come under pressure next year from higher wages, rising commodity prices and increasing corporate taxes. However, for now, a combination of booming demand and surging productivity continues to bolster profits.
The reaction from central banks on potential further upside surprises on inflation and economic growth will be a key development to watch out for in the coming months.
It is crucial to differentiate cyclical from structural headwinds and tailwinds as the recovery takes shape in 2021.
Although valuations in aggregate are high, the gap between the cheapest and most expensive stocks remains very wide – suggesting plenty of opportunities for stock selection.
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.
