JP Morgan's American beauty

It's hard to beat the US stock market. Less than 10 per cent of actively-managed US large-cap funds have managed to return more than the S&P 500 over the past seven years, the benchmark index, leading many investors to plump for low-cost tracking funds like the .

However, the JPMorgan American Investment Trust is one that has beaten the market. The trust has delivered an annual outperformance of 1.59 per cent every year since October 2002, when its current manager Garrett Fish assumed management. This stacks up to a good margin of cumulative net asset value (NAV) and share price outperformance over three and five years.

The principles are simple. The trust aims for capital growth and seeks to out perform the S&P 500 principally using stock selection. That's done by using a quantitative screen to narrow down potential stocks from a universe of 1,100, after which the investment team assess a number of criteria to make the final picks. The selection process has a particular focus on sustainable earnings growth, strong cash flows and reasonable valuations. The average company price-earnings ratio (PE) in the fund’s portfolio is 11.9 times compared with the S&P's average of 12.9 times.

Performance is further boosted by the fund's exceptionally low charges - its total expense ratio (TER) of 0.7 per cent is well below the average unit trust TER of between 1.6 and 1.7 per cent and not far off tracker fund levels. JPMorgan American does levy a performance fee of 10 per cent of the out performance of the S&P Composite, but this is capped at 0.25 per cent ofyour investment, and keeps the TER well below that of open-ended funds such as unit trusts.

This fund has no peers in the investment trust universe, but it outperforms many active open-ended funds over a five-year period, including 10 out of 11 of the most popular ones, according to Alan Brierley, a director at broker Collins Stewart.

Mr Fish has a cautious outlook on the US market and has no debt, as in the past holding debt in a falling market has detracted from the trust's returns. The trust is biased to large-caps relative to the S&P 500, and Mr Fish has also upgraded the quality of the stocks. In terms of sector allocation the trust is overweight energy and healthcare, and underweight consumer-facing stocks. The trust maintains an allocation to small-caps from which it benefited during 2010, though this only accounts for around 5 per cent of assets.

Mr Fish is an experienced US equity investor who also manages JPMorgan's America Large Cap Fund. As well as his portfolio manager duties he is a sector analyst covering telecommunications. Before joining JPMorgan in 2002 Mr Fish was a US fund manager at Merrill Lynch, and has also worked at Hong Kong's Jardine Fleming.

JPMorgan American's strong performance has not escaped investors' notice, so the trust trades at a premium to NAV. However, it takes a proactive approach to managing its premium and has recently issued 1.5m shares to try and reduce it, and similarly in past periods when it has run at a discount it has bought back shares to narrow it.

The underlying investments are in dollars and the managers do not hedge currency risk, so investors are exposed to movements in the dollar-sterling rate. But if you can stomach this risk, then the trust makes a good addition to a portfolio. Buy.

Key fund data:

Source: Investors Chronicle, *JPMorgan Asset Management, **Winterflood.

Performance data as at 7 June 2011.

TOP 10 HOLDINGS as at 30 April 2011

Sector breakdown: