It’s hard to find an active manager outperforming the S&P 500 – buy it when you do

Questor thinks this American hybrid can adapt to Trump and beat indices

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Donald Trump’s re-election has left investors in the US with a quandary. Do they pile into American shares, confident of a repeat of the bull run that greeted his first ascent to the White House in 2016?
Or do they stick to the sidelines and perhaps even reduce their holdings in the world’s largest economy, wary that the maverick Republican’s pledges to cut taxes and red tape could push an already fully valued stock market unsustainably high?
It’s a dilemma. After the speculative surge in artificial intelligence stocks, it pays to be cautious. But encouragingly, the initial reaction to Mr Trump’s decisive win last week saw the dollar and a broad range of stocks from financials to industrials rally, not just the “magnificent seven” technology giants that have dominated Wall Street for two years.
Jack Caffrey, one of four fund managers in New York who run JP Morgan American, cautioned investors not to over-trade or make easy assumptions. He explained that contrary to expectations of Mr Trump as anti-technology and pro-oil, his first four-year term as president saw tech stocks perform best and energy shares fare worst.
Despite Mr Trump’s “drill, baby, drill” mantra, Mr Caffrey said it was during the Biden administration that US oil production had risen by 1m barrels a day. This underlines the importance of not rushing to conclusions.
The US stock market is more expensive than it was eight years ago, with companies on the S&P 500 index today priced at an average of 22 times earnings, compared to a previous 16 times. Interest rates are also higher, with 10-year US government bonds – or treasuries – yielding 4.3pc versus 2.7pc in 2016.
Mr Caffrey said: “That shifts the narrative from a broad ‘shares are cheap’ to ‘what companies do you want to own?’”
While the US jobs market was slowing, the economy was resilient and defied several predictions of recession, with consumer spending holding up despite cost-of-living pressures.
The £2bn fund Caffrey helps run has a flexible structure that can adapt to Trump II. Unusually, JP Morgan American has two parallel portfolios.
Mr Caffrey and Jonathan Simon pick the 20 best value stocks or good businesses they believe are cheap. Their colleagues Felise Agranoff and Eric Ghernati select their 20 best growth shares, which are more expensive but whose prospects may be underestimated by other investors.
This is different from most funds, which either plump for value or growth or attempt the difficult task of balancing both styles together.
The dual strategy shows in the trust’s 10 biggest holdings, which are neatly divided with the top five of magnificent seven growth stocks – Microsoft, Amazon, Nvidia, Meta and Apple – accounting for a quarter of the assets.
Below these are five value stocks: Berkshire Hathaway, the conglomerate of Warren Buffett, the world-famous investor, insurance group Loews, bank Capital One, and energy companies Kinder Morgan and EOG Resources. These make up 13.5pc of the trust.
However, while Ms Agranoff and Mr Ghernati have pared back some of the big technology holdings after their strong run, Mr Caffrey and Mr Simon are overweight in their top value positions. They invest more than an S&P tracker would because they are confident in their recovery prospects.
At the end of September, the trust was split slightly in favour of growth, which held 55pc of the assets, compared with value’s 45pc. The ability to tilt between investment styles has been a big advantage. It let JP Morgan American ride the internet wave after the pandemic but switch more to value when inflation rose two years ago and growth stocks crashed.
Between March 2019 – when the trust introduced its hybrid approach – and September 2024, the trust has generated an annual 17.2pc return, 2pc more per year than the 15.1pc from the S&P 500.
In the few short months since we added the trust to our wealth preserver portfolio, we have already enjoyed more than a 10pc share price return. We are not bailing out of one of the few funds reliably outperforming a buoyant US stock market.
Questor says: buyTicker: JAMShare price: £11.12
Gavin Lumsden is editor of Citywire’s Investment Trust Insider website.
Read the latest Questor column on telegraph.co.uk every weekday at 5am. Read Questor’s rules of investment before you follow our tips.
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