Investment Managers' Review
JPMorgan American IT PLC
10 August 2006
STOCK EXCHANGE ANNOUNCEMENT
JPMORGAN AMERICAN INVESTMENT TRUST PLC
Results for the six months ended 30th June 2006 - Investment Managers' Review
Market Review
The first six months of the year were characterised by rising interest rates,
energy and commodity prices, slowing housing prices and fears of increasing
inflation. Strong balance sheets, impressive earnings growth and increasing
consolidation overcame those fears, and led the market higher in Dollar terms.
The S&P 500 Index, which is the Company's benchmark comparator, declined by
4.9%, in sterling, for the period, in total return terms.
The Federal Reserve raised interest rates four times for a total of 100 basis
points in the first six months of the year, ending at 5.25%. Although the new
Fed Chairman Ben Bernanke did his best to soothe market anxieties by stating
that 'monetary policy actions will be increasingly dependent on incoming data',
relatively hawkish written commentary from the Fed convinced investors that
there were more rates hikes to come.
The price of oil rose $13 to $74 over the period, as world-wide economic growth
increased demand. The US economy continued to grow at an impressive pace in the
face of higher energy costs and real GDP grew at an annual pace of 4% during the
first six months of the year. Strong economic growth and corporate cost cutting
resulted in impressive earnings growth, as the S&P 500 index posted its 12th
consecutive quarter of double digit earnings growth during the second quarter of
2006.
Performance
The net asset value decreased by 2.8% in total return terms in the first six
months of 2006 as the US dollar declined by 7.2% during the period.
Although the overall portfolio fell in sterling terms over the period there was
a positive performance contribution of 0.9% from the large cap portfolio. The
key drivers to this were particularly strong stock selection in aerospace and
defence stocks such as Boeing and Lockheed Martin and a strong benefit from
owning Corning whose successful LCD display business has been the primary source
of growth. The portfolio's lack of exposure to energy companies detracted from
performance.
The smaller companies portfolio had another good period of relative performance
and the contribution to outperformance was 0.6% for the first six months.
With the muted outlook for equity markets, the investment managers have reduced
the level of the gearing during the first six months of the year. After starting
the year at 109% the gearing ratio was reduced to 103% at the end of March,
where it remained until the period end. The composition of the portfolio also
changed during the period, as the managers reduced exposure to small and micro
cap.
Outlook
Although we still await signs of material weakness in the overall real economy,
we may now have reached a turning point in investor expectations for the
near-term prospects for economic expansion. The timing of, and the extent to
which, a US growth rate slowdown may eventually materialise remains uncertain,
but stock market advances are likely to be limited until convincing indications
of lower growth remove the need for further interest rate increases. We continue
to view recent events as more of a correction than the opening phases of a bear
market.
The next few months may prove to be volatile ones for domestic stock markets.
The economy is likely to show signs of cooling outside the housing market with
constraints on the consumer continuing to mount. One of the most important
criteria for stock market appreciation hinges on the Federal Reserve's success
in halting the inflationary pressures that have built up over the last two
years. In the interim, forecasts for strong corporate profit growth should
provide valuation support if raw material and, particularly, wage cost pressures
stay contained.
Garrett Fish
Tim Parton
Eytan Shapiro
Investment Managers 9th August 2006
For further information, please contact:
Andrew Norman
For and on behalf of
JPMorgan Asset Management (UK) Limited - Secretary
020 7742 6000
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