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New initiatives from US small-cap value specialist

Jupiter US Smaller Companies 2 November 2017 Review
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Jupiter US Smaller Companies

New initiatives from US small-cap value specialist

Investment trusts

2 November 2017

Price

850.0p

Market cap

£151.2m

AUM

£165.8m

NAV*

931.0p

Discount to NAV

8.7%

*Including income. As at 31 October 2017.

Yield

0.0%

Ordinary shares in issue

17.8m

Code

JUS

Primary exchange

LSE

AIC sector

North America Smaller Companies

Share price/discount performance

Three-year performance vs index

52-week high/low

925.0p

735.0p

1,001.3p

825.5p

*Including income.

Gearing

Gross*

0.0%

Net cash*

1.5%

*As at 30 September 2017.

Analysts

Sarah Godfrey

+44 (0)20 3681 2519

Mel Jenner

+44 (0)20 3077 5720

Jupiter US Smaller Companies is a research client of Edison Investment Research Limited

Jupiter US Smaller Companies (JUS) has announced a number of new initiatives and enhancements to its investment process, aimed at boosting shareholder value and the potential for long-term growth and capital preservation. The manager intends to increase concentration in favoured holdings and be less keen to take profits in winning stocks, at the same time as acting more quickly to cut positions that are not proceeding as hoped. Meanwhile, the board has put in place the trust’s first gearing facility, scrapped the performance fee and introduced a new, tiered management fee, alongside a commitment to growing the trust to a target £200m over the next two to three years. While JUS’s value investment style has been out of favour in the US for the past decade, Fund Manager Robert Siddles says that with the bull market in growth stocks becoming more and more extended, the case for value is stronger than ever.

12 months ending

Share price
(%)

NAV
(%)

US small-cap equities (%)

FTSE All-Share (%)

S&P 500
(%)

31/10/13

34.1

33.8

34.7

27.5

22.8

31/10/14

(2.2)

6.4

7.1

17.8

1.0

31/10/15

(6.2)

(3.4)

2.6

9.0

3.0

31/10/16

26.2

30.2

29.7

32.2

12.2

31/10/17

10.8

6.4

16.0

13.7

13.4

Source: Thomson Datastream. Note: All % on a total return basis (capital return for US small-cap equities) in pounds sterling.

Investment strategy: Capital preservation and growth

JUS Manager Robert Siddles has a risk-aware, value-focused investment approach, aiming to find good-quality companies that are trading at a substantial discount to their true worth. Stocks identified by an initial value screen must pass a five-step ‘good company test’ to be considered for inclusion in the 50-60 stock portfolio. Siddles tends to avoid certain areas, such as high technology, biotech and fashion, but has increased JUS’s weighting in consumer discretionary stocks over the past year. He divides the holdings into ‘compounders’ – those with valuable assets or earnings that offer great long-term growth potential – and recovery or turnaround situations, which will usually have a shorter (two- to three-year) holding period.

Market outlook: High valuations amid exuberance

Global equity markets have been exuberant in recent months, achieving new all-time highs on both sides of the Atlantic in spite of macroeconomic and geopolitical concerns. Against this backdrop, with historic P/E ratios for both large- and small-cap US equities at 10-year highs (according to Datastream data), and significantly above long-term averages, investors in the world’s largest stock market may prefer to take a more selective, value-orientated approach in the pursuit of long-term returns.

Valuation: Discount sub-10%, supported by buybacks

At 31 October 2017, JUS’s shares traded at an 8.7% discount to cum-income NAV. This is narrower than one- and three-year averages (9.1% and 10.2%, respectively) but wider than the averages over five and 10 years (6.0% and 6.5%). The board actively buys back shares to keep the discount below the target 10% maximum.

Exhibit 1: Trust at a glance

Investment objective and fund background

Recent developments

Jupiter US Smaller Companies’ objective is to achieve long-term capital growth by investing in a diversified portfolio of quoted US smaller and medium-sized companies. It uses a 2,000-stock US small and mid-cap index (capital returns, sterling adjusted) as a performance benchmark.

10 October 2017: Annual results for the year ended 30 June 2017. NAV return +15.7% and share price return +19.2% versus +26.2% for the benchmark. Fee reduction and new gearing facility announced (see page 3).

6 March 2017: Results for the six months ended 31 December 2016. NAV return +22.2% and share price return +30.1% versus +27.5% for the benchmark (all in sterling terms).

15 November 2016: All resolutions passed at AGM

Forthcoming

Capital structure

Fund details

AGM

November 2017

Ongoing charges

1.01%

Group

Jupiter Unit Trust Managers

Interim results

March 2018

Net cash

1.5%

Manager

Robert Siddles

Year end

30 June

Annual mgmt fee

Tiered (see page 7)

Address

The Zig Zag Building, 70 Victoria St, London, SW1E 6SQ

Dividend paid

N/A

Performance fee

No (see page 7)

Launch date

10 March 1993

Trust life

Indefinite, subject to vote

Phone

020 3817 1000

Continuation vote

Three-yearly, next 2017

Loan facilities

£20m

Website

www.jupiteram.com/JUS

Portfolio exposure by sector (as at 30 September 2017)

Share buyback policy and history (calendar years)

Weightings are adjusted for cash (1.5% at 30 September 2017).

JUS has the authority to allot up to 10% and buy back up to 14.99% of shares to manage a premium or a discount. Buybacks are employed with the aim of maintaining the discount at a maximum of c 10%.

Shareholder base (as at 22 August 2017)

Portfolio exposure by theme (as at 30 September 2017)

Top 10 holdings (as at 30 September 2017)

Portfolio weight %

Company

Exchange

Sector

30 September 2017

30 September 2016*

Ollie's Bargain Outlet

NASDAQ

Retailing

3.2

N/A

American Vanguard

NYSE

Materials

2.8

N/A

Genesee & Wyoming

NYSE

Transportation

2.7

2.6

Old Dominion Freight Line

NASDAQ

Transportation

2.5

2.3

Lions Gate Entertainment

NYSE

Media

2.5

N/A

LKQ

NASDAQ

Retailing

2.5

2.5

America's Car-Mart

NASDAQ

Retailing

2.3

2.5

Chef's Warehouse

NASDAQ

Food & staples retailing

2.3

N/A

Ensign Group

NASDAQ

Healthcare equipment & services

2.3

N/A

Service Corp

NASDAQ

Consumer services

2.3

N/A

Top 10

25.4

23.9

Source: Jupiter US Smaller Companies, Edison Investment Research, Bloomberg, Morningstar. Note: *N/A where not in September 2016 top 10.

Recent developments

In its annual results to 30 June 2017, published in October, the board of JUS announced a number of new initiatives designed to enhance shareholder value. In addition, the manager has indicated some small changes to the investment process in order to improve long-term performance potential.

Reduction in running costs: a new, tiered fee structure has replaced the previous management fee of 0.80% of total assets. With effect from 1 October 2017, the fee will be 0.75% of adjusted net assets (net assets excluding any drawn down bank debt) up to £150m, 0.65% from £150m up to £250m, and 0.55% thereafter. Because of the October start date, FY18 will be a transitional year, with fees calculated on the old basis for the first quarter to 30 September 2017, and on the new basis thereafter.

Removal of performance fee: the performance fee has been scrapped with retrospective effect from the beginning of FY18. The board sees the new charging structure as competitive both with comparable investment trusts and with the institutional share class of the open-ended Jupiter US Small and Midcap Companies Fund, also managed by Siddles.

New gearing facility: in order to differentiate JUS from its open-ended stablemate, boost long-term return potential and take advantage of low interest rates, the board has arranged a flexible loan facility of £20m with Scotiabank, with an option to increase to £30m. Siddles says he is likely to use the facility opportunistically, for example to fund the purchase of a new holding, rather than to increase overall market exposure.

Commitment to growing the trust: the board and manager have a stated objective of achieving an asset base for JUS of at least £200m within two to three years. Given the trust’s short-, medium- and long-term performance record of NAV total returns exceeding 9% pa, this objective looks achievable. However, it is our view that in order to grow the trust successfully, it may be necessary to slow the pace of share repurchases. Over 12 months to 30 September 2017, JUS’s NAV per share grew by 9.2%, but the number of shares in issue fell by 14.1%.

Running winners and cutting losers: manager Robert Siddles aims to increase the impact of good stock selection by being less keen to take profits in holdings that have done well. At the same time, he intends to be less patient with poor-performing stocks, particularly in more volatile industries. The commitment to the ‘good company test’ and the trust’s focus on capital preservation will remain unchanged.

Increasing concentration in favoured stocks: historically, JUS’s 50-60 stock portfolio has been broadly equal-weighted, with the top 10 holdings making up less than 25% of the portfolio. Siddles intends gradually to increase the concentration to c 30% or more in the top 10; this may come about partly as a side effect of holding on to winning stocks for longer.

Fund profile: Value-focused US small-cap fund

Jupiter US Smaller Companies (JUS) began life as the F&C US Smaller Companies investment trust in 1993, taking on its current identity in 2014 after its manager since launch, Robert Siddles, moved from F&C Investments to Jupiter Asset Management. The trust seeks to achieve long-term capital growth by investing in small and mid-cap US companies in the $100m to $5bn size bracket. The manager has a value-orientated approach, with a focus on capital preservation as well as growth. All holdings must pass a rigorous ‘good company test’ to be considered for inclusion in the portfolio of c 50-60 stocks. Siddles seeks to blend companies that can grow and compound returns over the long term, with recovery and turnaround situations, usually held for a shorter period of up to three years. Given that US small and mid-cap companies are not generally high yielding, JUS does not pay dividends. It has also historically not used gearing; however, it has recently put a borrowing facility (£20m, or c 12% of net assets) in place for the first time.

The fund manager: Robert Siddles

The manager’s view: Signs of strain in growth bull market

Siddles notes that JUS’s value style has been a relative headwind over most of the past decade, a period that has seen growth stocks – particularly those in high-tech areas – outperform. He points out that using the Fama-French high minus low model of measuring rolling 10-year value versus growth stock performance, since 2014 the cheapest US stocks have underperformed the most expensive to an extent seen only twice before in the past 80 years. This occurred during the Great Depression in the 1930s, and the tech bubble in the 1990s, and in both previous cases, value went on to outperform strongly. Studies suggest that over the very long term, stocks in the cheapest valuation quintiles have done significantly better than those that are more expensive.

The manager argues that with some of the big US tech stocks having struggled over the summer to achieve new highs, there may be cracks appearing in the growth stock bull market. Meanwhile, there are mixed signals on the US economy, with indicators such as purchasing managers’ indices (PMIs) still strongly in expansionary territory, while an uptick in consumer credit delinquencies, at a time when interest rates and inflation are rising, could point in the other direction. Should markets be spooked by rate rises, geopolitics or overstretched valuations, Siddles points out that his strategy (both JUS and the open-ended Jupiter US Small and Midcap Companies fund) has tended to protect capital better than peers in more challenging market conditions. Meanwhile, an increased focus on maximising gains from winning stocks, by avoiding early profit taking, could stand the trust in good stead if the market continues to test new highs.

Asset allocation

Investment process: Disciplined and risk-aware

Siddles aims to blend two broad types of stock in JUS’s value-orientated portfolio: ‘Buffett compounders’ and ‘Graham recovery’ stocks, named for two prominent US value investors, Warren Buffett and Benjamin Graham (see our initiation note for a full explanation). Compounders are core, long-term holdings with valuable assets or earnings, while recovery stocks (usually with a shorter holding period of up to three years) may be cyclically depressed, or corporate turnarounds recovering from structural challenges.

While the investment objective is to achieve capital growth, the manager also seeks to limit downside risk in the 50-60 stock portfolio, made up of stocks broadly in the $100m to $5bn size bracket (a universe of more than 2,000 companies). He does this by focusing on avoiding ‘value traps’ and concentrating on good-quality companies whose share prices are depressed. The first stage in the investment process is a quantitative screen to identify stocks that have experienced short- or long-term price weakness. These are then subjected to a risk assessment, focusing on industry, style, and company-specific factors.

Siddles analyses industry cycles and trends, past bubbles, global capital flows, commodity cycles and regional population trends to identify promising candidates for further research. He tends to avoid certain areas such as most technology stocks, biotechnology, fashion and restaurants, while favouring staple goods and services, transport and distribution, non-life insurers and custodians of capital. The manager travels frequently to the US to meet companies, which may have little or no analyst coverage, on their own ground.

The core of the investment process is a rigorous, five-step ‘good company test’. Stocks must pass all five stages of the test in order to be considered for inclusion in the portfolio:

A strong franchise in order to gain market share and counter competitive risks;

Free cash flow, preferably used to enhance value for existing shareholders;

High management share ownership, to align interests with those of investors;

Pricing power, to avoid the risk of over-powerful customer bases; and

Very cheap shares, with at least 50% share price upside potential from the time of investment.

The first four tests are aimed at ensuring there is low business risk, while the fifth is intended to limit share price risk. Together the tests should provide a ‘margin of safety’, limiting potential downside. Relatively few companies can tick all five boxes, which means Siddles builds full financial models (the final stage of the stock selection process) on only a small number of stocks each year.

A strong sell discipline is employed to protect gains and limit losses. Companies may be sold for fundamental reasons, such as a change in corporate strategy or industry cycle, a failure to deliver growth over two to three years, or the investment thesis no longer applying (for example in the case of a recovery stock that has recovered); or market reasons, such as a very sharp upward share price move in a short period, or the market cap of a company becoming too large for a small- and mid-cap strategy. Positions may be trimmed to keep within informal limits of 5% in a single stock and 15% in an industry group.

Current portfolio positioning

At 30 September 2017, JUS had 52 holdings, a reduction from 58 at the 30 June 2017 year-end. The top 10 stocks made up 25.4% of the total, up from 23.9% at 30 September 2016. At a sector level, the biggest change in the portfolio over FY17 was a doubling of the consumer discretionary weighting, from 11.0% to 22.2% (20.1% at 30 September 2017). One stock (Big 5 Sporting Goods) was sold and seven were added, including Lions Gate Entertainment, now a top 10 position. Lions Gate is a film and TV company, known for franchises such as the Hunger Games films and the TV series Mad Men. Siddles says the shares were depressed when he bought the company in Q416 because of a slow period for film production; however, its acquisition of cable TV company Starz has brought in a more regular revenue stream, as well as reducing leverage and increasing distribution capability. Siddles believes the enlarged company could be a compelling takeover target for a content-hungry major media or telecom firm.

Exhibit 2: Portfolio sector exposure (% unless stated)

Portfolio end-September 2017

Portfolio end-September 2016

Change (pp)

Financial services

25.0

23.7

1.3

Consumer discretionary

20.1

16.8

3.3

Producer durables

16.0

16.8

(0.8)

Healthcare

13.4

15.9

(2.5)

Technology

8.6

10.3

(1.7)

Energy

5.9

1.9

4.0

Materials & processing

4.0

2.2

1.8

Consumer staples

3.9

8.3

(4.4)

Utilities

1.7

2.1

(0.4)

Cash

1.5

2.0

(0.5)

100.0

100.0

Source: Jupiter US Smaller Companies, Edison Investment Research

Since the FY17 year-end Siddles has continued to add to financial services stocks, focusing on low-cost, well-run regional business lenders and entrepreneurial investment banks. Consumer staples exposure has fallen following the sale of United Natural Foods, an organic food distribution firm that was a major customer of Amazon acquiree Whole Foods Market. Siddles is focused on companies that are undervalued because of perceived threats from Amazon, which they are in fact well placed to combat, such as off-price retailer Ollie’s Bargain Outlets (the largest position in the portfolio; branded goods manufacturers are resistant to selling discounted ends-of-lines online, preferring a physical discount store), and recent purchase MSC Distribution, which makes specialist technical parts for the metalworking industry, and has a highly knowledgeable salesforce that will not be easily disintermediated by a self-service internet model.

Performance: Consistent long-term returns

Exhibit 3: Investment trust performance to 31 October 2017 in sterling

Price, NAV and benchmark total return performance, one-year rebased

Price, NAV and benchmark total return performance (%)

Source: Thomson Datastream, Edison Investment Research. Note: Three, five and 10-year performance figures annualised.

While JUS has produced creditable share price and NAV total returns of c 6-14% a year over one, three, five and 10 years, it has underperformed its US small-cap equity benchmark (except over 10 years) as a result of a prolonged period in which the value investment style has been out of favour. Adjustments to the investment process are aimed at building on the benefits of positive stock selection by increasing conviction in winning stocks and being less eager to take profits, while cutting losing stocks more quickly. The top contributors to performance over 12 months to 31 August 2017 were largest holding Ollie’s Bargain Outlet (compounder), shipping operator Navigator Holding (recovery), senior health and fitness specialist Tivity Health (turnaround), food wholesaler/retailer Chef’s Warehouse (compounder) and Addus Homecare (turnaround), which provides home care services to low-income older Americans. Together these holdings added 5.6pp to returns. The biggest detractors were Amplify Snack Brands, technology stocks Synchronoss Technologies and The Rubicon Project, and healthcare names Mednax and Kindred Healthcare. Together these detracted 4.4pp from returns, and all bar Amplify Snack Brands have now been sold.

Exhibit 4: Share price and NAV total return performance, relative to indices (sterling adjusted, %)

 

One month

Three months

Six months

One year

Three years

Five years

10 years

Price relative to US small-cap equities

(1.9)

(5.5)

(3.9)

(4.4)

(14.9)

(22.8)

9.5

NAV relative to US small-cap equities

(0.7)

(2.1)

(2.3)

(8.2)

(13.2)

(14.4)

6.0

Price relative to FTSE All-Share

(1.9)

(3.8)

(5.1)

(2.2)

0.1

5.8

81.8

NAV relative to FTSE All-Share

(0.7)

(0.3)

(3.6)

(6.1)

2.1

17.2

76.0

Price relative to S&P 500

(3.4)

(4.9)

(5.4)

(2.5)

(19.9)

(30.1)

(3.7)

NAV relative to S&P 500

(2.2)

(1.4)

(3.9)

(6.4)

(18.3)

(22.5)

(6.8)

Source: Thomson Datastream, Edison Investment Research. Note: Data to end-October 2017. Geometric calculation.

Exhibit 5: NAV performance relative to US small-cap equities over 10 years, in sterling

Source: Thomson Datastream, Edison Investment Research

Discount: Narrower than average, assisted by buybacks

At 31 October 2017, JUS’s shares traded at an 8.7% discount to cum-income NAV. This compares with average discounts of 9.1%, 10.2%, 6.0% and 6.5%, respectively, over one, three, five and 10 years. The trust’s board uses share buybacks with the aim of ensuring the discount does not exceed 10% in normal market conditions (see below). The discount has not been above 10% since 26 June 2017, having exceeded 10% on 34.5% of trading days in the 12 months to 27 October 2017.

Exhibit 6: Share price discount to NAV (including income) over three years (%)

Source: Thomson Datastream, Edison Investment Research

Capital structure and fees

A conventional investment trust with one class of share, JUS had 17.9m ordinary shares in issue at 27 October 2017. This is a reduction of 14.5% over 12 months as a result of JUS’s active discount management programme (2.9m shares repurchased at a cost of £23.9m). The new borrowing facility announced in the FY17 results (up to £20m with Scotiabank) is equivalent to c 12% of net assets versus maximum permitted gearing of 20%; however, as at 30 September 2017, JUS was ungeared.

Under the amended fee arrangements also announced in the FY17 results, Jupiter Unit Trust Managers will receive a management fee of 0.75% of net assets up to £150m, reducing to 0.65% over £150m and up to £250m, and 0.55% above £250m. Previously a flat fee of 0.80% was paid. The performance fee structure has been removed, backdated to the beginning of FY18, although in practice a performance fee was last paid in respect of FY14.

Dividend policy and record

Because of its focus on capital growth and the fact that small and mid-cap US equities are not generally high yielding, JUS has never paid a dividend. What revenue income it receives (£1.3m in FY17) is more than offset by running costs, which are mainly charged to the revenue account.

Peer group comparison

JUS is a member of the Association of Investment Companies’ North American Smaller Companies sector, a small peer group of three funds. JUS has a value focus while its closest peer, JPMorgan US Smaller Companies, has a growth bias. The third fund, North Atlantic Smaller Companies, invests on both sides of the Atlantic and holds a mixture of listed and private equity as well as fixed income investments. For a more representative peer group, in Exhibit 7 we also show a selection of peers for the open-ended Jupiter US Small and Midcap Companies fund.

JUS has outperformed the open-ended fund (launched in 2014) over one and three years. It ranks second for NAV total returns among the closed-ended peers over 10 years, and third over one, three and five years. However, returns over most periods – while respectable in absolute terms – are below the average for both the open- and closed-ended peer groups, reflecting a long period in which value investing has been out of favour. Charges are competitive (the lowest in the AIC sector) and will fall further under the new fee arrangements. JUS is currently ungeared and trades at a wider discount to NAV than its closest peer.

Exhibit 7: Selected peer group as at 27 October 2017 (all in sterling)*

% unless stated

Market cap/
fund size £m

NAV TR
1 year

NAV TR
3 year

NAV TR
5 year

NAV TR
10 year

Ongoing charge

Perf.
fee

Discount (ex-par)

Net
gearing

Dividend yield (%)

Jupiter US Smaller Companies

153.1

6.6

41.6

95.9

206.3

1.0

No

(10.4)

100

0.0

JPMorgan US Smaller Companies

160.4

18.4

85.0

170.1

221.3

1.5

No

(4.1)

107

0.0

North Atlantic Smaller Cos

393.1

9.7

56.8

127.2

155.0

1.1

Yes

(18.7)

100

0.0

Weighted average

11.0

59.9

130.2

181.2

1.2

(13.6)

102

0.0

JUS rank in sector

3

3

3

3

2

3

2

2

1=

Open-ended funds

Allianz US Small Cap Equity

4.3

19.4

43.1

--

--

2.10

No

Artemis US Smaller Companies

186.3

16.1

--

--

--

0.90

No

0.1

F&C US Smaller Comp Fd

70.5

8.9

60.9

127.2

243.4

0.81

No

0.1

GS US Sm Cp CORE Eq

322.8

15.6

72.6

137.5

234.1

0.85

No

0.3

Hermes US Smid Equity

666.6

7.0

64.8

138.0

--

0.87

No

JPM US Smaller Companies

96.2

25.1

78.3

139.4

205.0

0.93

No

Jupiter US Small and Midcap Cos

18.7

3.1

34.6

--

--

1.06

No

Legg Mason IF Royce US Smlr Cos

223.1

16.9

46.5

93.2

153.9

0.98

No

0.5

Legg Mason RY US Sm Cp Opp

860.9

25.5

71.5

137.1

206.1

1.98

No

Neuberger Berman US Sm Cap

300.2

13.4

63.4

113.7

--

1.99

No

Schroder US Smaller Comp

837.1

13.6

72.2

144.9

225.7

0.92

No

0.1

T. Rowe Price US Smlr Cos Eq

980.1

14.1

68.8

147.0

283.7

1.11

No

Threadneedle Amer Smlr Cos

747.2

11.8

63.9

150.0

245.0

0.88

No

0.2

Weighted average

15.0

67.5

138.9

235.5

1.17

0.2

Source: Morningstar, Edison Investment Research. Note: *Performance data to 26 October 2017. TR=total return. Net gearing is total assets less cash and equivalents as a percentage of net assets (100 = ungeared).

The board

JUS has five independent, non-executive directors. The chairman (since 1998), Gordon Grender, has served on the board since launch in 1993. Peter Barton, chairman of the audit and management engagement committees, was appointed in 1998, while senior independent director Norman Bachop joined the board in 1999. Clive Parritt and Lisa Booth were appointed in 2007 and 2015, respectively. The directors have backgrounds in fund management, investment banking, accountancy and law.

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Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority (Financial Conduct Authority). Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

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Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Jupiter US Smaller Companies and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable; however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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