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JPMorgan Global Growth & Income (JGGI) yesterday announced that it has signed heads of terms with the board of JPMorgan Elect (JPE) in respect of a proposed merger with JPE, which will see assets transferred to JGGI. This merger follows JGGI’s well-received combination with Scottish Investment Trust, which was finalised in August this year. It will further increase JGGI’s assets under management by over £330m, to £1.64bn, making it one of the UK’s largest investment trusts and a leading investment vehicle for global equity, which also offers a relatively attractive dividend (currently 3.9%). Subject to the approval of the shareholders of both JGGI and JPE, and regulatory and tax clearances, it is expected the merger will be completed by the end of the calendar year.
JPMorgan Global Growth & Income |
JPM Elect merger strengthens investment case |
Investment trusts |
28 October 2022 |
Analyst
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JPMorgan Global Growth & Income (JGGI) yesterday announced that it has signed heads of terms with the board of JPMorgan Elect (JPE) in respect of a proposed merger with JPE, which will see assets transferred to JGGI. This merger follows JGGI’s well-received combination with Scottish Investment Trust, which was finalised in August this year. It will further increase JGGI’s assets under management by over £330m, to £1.64bn, making it one of the UK’s largest investment trusts and a leading investment vehicle for global equity, which also offers a relatively attractive dividend (currently 3.9%). Subject to the approval of the shareholders of both JGGI and JPE, and regulatory and tax clearances, it is expected the merger will be completed by the end of the calendar year.
Key takeaways
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In our view, this merger appears to strengthen the already robust investment case for JGGI by enabling JGGI shareholders to benefit from greater economies of scale arising from an enlarged asset base, including greater liquidity in JGGI shares, and cost efficiencies.
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JGGI will also benefit from lower costs following the merger, as its tiered management fee will have the effect of reducing the weighted average fee given the further growth in its NAV. JGGI estimates that based on valuations at 25 October 2022, following the merger, the weighted average management fee will decline to 0.46% of NAV. JGGI’s ongoing expense ratio will also be lower than the current 0.53% (at end September 2022) as the company’s fixed costs will be spread over a larger asset base.
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JGGI will continue to implement its existing dividend policy and investment policy, which has delivered strong absolute returns and outperformance of its benchmark and peers over the long term. In the 10 years to end-September 2022, the company realised an annualised return of 13.1% in NAV terms and 13.8% in share price terms, compared to a benchmark return of 11.3%. (For further details see our latest JGGI update.)
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Following the completion of the proposed merger, one director from JPE will be appointed as a non-executive director of JGGI, taking the number of JGGI board members initially to seven.
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JPE has three share classes: Managed Growth, Managed Income and Managed Cash. As some assets held in the Managed Growth class are less liquid than JPE’s other holdings, they will be transferred into a newly created C share class of JGGI shares until these assets can be realised over time and re-invested in line with JGGI’s ordinary share investment policy. The C shares will then be converted to ordinary shares on an NAV basis. JPE’s other assets will be realised before the merger, then transitioned into assets in line with JGGI’s investment policy and transferred to JGGI at the completion of the merger, in exchange for new ordinary shares in JGGI.
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JPMorgan has agreed to make a contribution to the cost of the merger, reducing the effective implementation costs for both JGGI and JPE.
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