Thus far, stock markets have given Joe Biden a warm reception after the seasoned Democrat powered to his historic victory in last week’s US presidential election (Miles Costello writes). Not so much because investors are feeling rapturous about the liberal agenda of Mr Biden, 77, but more because having a divided Congress is probably going to put the brakes on his chances of getting any radical policies on to the statute books.
Still, the likelihood of Mr Biden, a veteran bipartisan negotiator, being muted entirely feels remote, so international investors will be watching closely for the impact of the new president’s initiatives on the health of corporate America.
Into this picture comes JP Morgan American, a £1.1 billion investment trust that predominantly buys into larger quoted US corporations. The vehicle does pay a dividend but focuses more on trying to generate capital growth for shareholders. That’s a good start. Companies in the S&P 500, the trust’s benchmark, tend to have a lower dividend yield relative to their counterparts in the FTSE 100, but in absolute terms the index has massively outperformed London’s top shares in recent decades. However, while growth has been plentiful — the trust’s share price has almost doubled in the past five years— its returns have modestly lagged behind its reference index over one, three, five and ten years.
Clearly, the composition of the portfolio is going to be central. Just over 26 per cent of JP Morgan American’s assets are held in the technology sector, which on the face of it seems high but is lower than the wider index. At the same time, it is very heavily invested in financials, which account for just under 20 per cent of its holdings, way ahead of the weighting of the S&P 500. This means that it has benefited less than others from the rally in technology stocks, but has lost more than the wider market from the prolonged downturn in bank shares.
JP Morgan American is also relatively very underexposed to consumer staples, the providers of everyday essentials that have performed strongly during the pandemic. The trust’s use of gearing, which amplifies returns in a rising market, has historically been fairly limited, which arguably also has held it back. That’s not to say there aren’t plenty of high-returning companies in the portfolio, Microsoft, Apple and Amazon, stalwarts of Big Tech, among them.
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So what does the future hold under the leadership of Mr Biden? In general terms, the backdrop is probably a good one for US-based companies. The new president is unlikely to be able to heavily increase corporation tax as he wanted, which will benefit big business, in particular large taxpayers such as the banks.
In addition, a Republican-led Senate probably would support only a limited version of the large stimulus and infrastructure renewal programmes that Mr Biden would have wanted to help America to emerge from its virus-induced economic doldrums. That is likely to be less beneficial for US industrials, in which the trust is relatively light. That is also probably a net positive.
There are plenty of other elements. Mr Biden has not declared himself hostile to Big Tech, though it does feel as if the mood music globally is in favour of tighter controls, of social media businesses in particular. As a Democrat, Mr Biden is likely to favour tougher regulation of Wall Street banks.
All told, having Mr Biden in the White House is probably a good thing for the trust and its investors. Whether it’s enough to justify buying the shares, up 24p, or 4.5 per cent, to 562p yesterday, is another matter.
ADVICE Hold
WHY Probably reasonably placed to benefit from a Biden presidency, but previous performance is not compelling enough to buy in
Calisen
The world looked a bit different when Calisen was listed nine months ago at 240p a share (Emily Gosden writes).
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The company procures, installs and manages gas and electricity meters for energy suppliers, recouping its costs from them via long-term rental agreements. At its initial public offering, it owned about 3.5 million traditional meters and 5.2 million smart meters, which take automatic readings. It had a pipeline of more than six million smart meters due to be installed, at a rate of about 100,000 per month this year. Then Covid-19 hit and Calisen had to sit on its hands for several months.
Things are getting back on track now, however, with installations running at 80,000 to 100,000 a month in the fourth quarter. Calisen also accelerated a restructuring of the recently acquired, loss-making Lowri Beck installation business.
Covid-19 is the latest in a series of setbacks for the smart meter rollout, but the long-term case for the meters is undiminished. They should play a critical part in the green energy transition, enabling variable price tariffs that reward customers for shifting their electricity consumption to off-peak times. Yesterday, Calisen said that it was the preferred bidder for another installation contract, of 1.3 million meters, taking its total pipeline to 7.5 million, in excess of its goals at its flotation. By the time the rollout is completed, it expects to operate 13.2 million meters, or about a quarter of the British market.
For investors, that means an increased asset base from which ultimately they should be able to reap returns. The FTSE 250 company plans to pay a modest dividend this year as it reinvests most of its revenues into further installations. As the bulk of installations are completed in the next few years, it should offer more substantial returns, as well as diversifying into potential new growth businesses, such as electric vehicle chargers.
Although up 5¾p, or 3.4 per cent, at 175p yesterday, the shares have not recovered fully from the pandemic. Yet if Calisen can convert that preferred bidder status into a contract win, it should be well on its way to delivering on its promises.
ADVICE Buy
WHY Solid long-term prospects despite Covid disruption
