In this series of profiles, we ask leading investment fund managers to tell us everything from their investment strategy, to their views on the biggest economic risks, their favourite forever stocks, the best piece of advice they’ve ever been given and what they’d never invest in.
This time our interviewee is Jonathan Simon, manager of the Morningstar Bronze-rated JPMorgan American Investment Trust (JAM).
1. Which sector provides the biggest investment opportunity in 2021?
The continued strong economic environment should offer a supportive back drop for the US banking sector, which is in a much stronger position than it was last year. Buyback programmes have recommenced and credit loss reserves are being released. Furthermore, positive economic indicators reinforce the overall market conviction in favour of a strong US recovery, with many strategists predicting +6% GDP growth in the US for 2021 and +4% for 2022.
2. What's the biggest economic risk right now?
At the moment in the US, inflation is probably the biggest concern. Recent inflation reports have surprised to the upside and wage growth is showing signs of life. We know some of it is transitory due to the supply and demand imbalance from last year’s shut down and the strong recovery. However there is a risk that inflation ends up being stickier than many expect. Only time will tell.
3. Describe your investment strategy:
For the JPMorgan American Investment Trust, we invest in North American quoted companies including smaller cap companies, and emphasise capital growth rather than income. We are bottom-up stock pickers, focused on owning stakes in high quality businesses with durable competitive advantages, which we believe will perform well over the long term.
4. Which famous investor or business professional do you look up to, and why?
Warren Buffett is a famous investor I admire. While Berkshire Hathaway may have struggled to keep up with the market in recent years, the Oracle of Omaha has proven to be a great investor over the long term.
5. What's your favourite forever stock?
A name that springs to mind is AutoZone (AZO), an auto parts retailer in the US. While I would never say forever when it comes to individual stocks, this is a name I have had exposure to in various strategies for nearly two decades. The company has over a 50% market share in the US do-it-yourself (DIY) category and is using that scale and size to expand into commercial markets, the do-it-for-me (DIFM) segment. AutoZone offers quality, brand name parts at low prices and has worked very hard to establish a reputation for customer service unequalled in the auto parts industry. With the average age of vehicles on US roadways at a record level of 12 years and approximately 25% of cars in the US at least 16 years old, the market environment bodes well for continued strong sales growth at AutoZone.
6. What would you never invest in?
I would say three areas I am personally avoiding are: Cryptocurrencies, Meme stocks and SPACs.
7. Growth or value?
As a value investor, for over three decades, I am naturally very biased, and 2021 has been an exciting period where we have been able to take advantage of the rotation into value stocks. In our view, value stocks have more room to run, but it pays to be selective and to do your homework.
8. House or pension?
Pension.
9. What are your thoughts on crypto?
Happy to watch it from the sidelines.
10. What can be done to increase diversity in the fund management industry?
In recent years, I believe that there has been good progress in the industry in regards to diversity and inclusion. We also see this in our engagement with companies, where management teams are truly engaged on the topic and recognise how it can drive better business outcomes. But one thing we should not forget is that it is still a work in progress and it is up to each of us to play our part in ensuring we are building a more diverse and inclusive culture.
11. What's an example of how you’ve engaged with a company you invested in where you were particularly proud of the outcome? (Or disappointed!)
We have engagement with a lot of companies and a key discussion point is often on capital allocation. We need to see that management can effectively utilise their excess cash flow to drive shareholder value. For example, Loews Corporation (L), a multi-industry holding company with exposure to the insurance, energy, hotel and packaging industries, is focused on long-term value creation for its shareholders and we have, in our many discussions with the management team, encouraged them to buy back more stock. Management did increase their buyback activity last year and we are happy with the steps they have taken so far, though there is still room for improvement.
12. Best bit of advice you’ve ever been given?
Many years ago, I was told by a seasoned investor that a key to long term success is learning to say no. You really have to trust your own instincts and judgements.
13. What would you do if you weren’t a fund a manager?
Many decades ago I applied for the foreign office in the UK but failed the civil service exam.
