The offering focuses on non-US firms that score well on balance-sheet strength, profitability, and management quality. Idea generation relies on this team's global sector specialists, who scour the best ideas from J.P. Morgan's vast regional equity research teams, which cover approximately 2,500 stocks around the world, by viewing their research with a global lens. The global specialists ultimately rank stocks from A to C, with A representing their highest-conviction bets, a framework that helps form position-sizing decisions. The team is long-term-oriented—it sets five-year expected return targets—so it's no surprise that annual portfolio turnover trends around 30%. While management is willing to pay up for some growth-oriented opportunities, valuation is an important consideration as well. As a result, the portfolio is well-balanced from a style perspective, hence why it has historically landed in the core portion of the style box.
This best-ideas portfolio is fairly concentrated, comprising 40 to 50 stocks, although individual holdings are still typically capped at 5%. Management wants stock selection to drive returns, and while sector and country bets can deviate up to 20 percentage points relative to the MSCI ACWI ex USA Index, full use of that flexibility has been rare in practice.
JPMorgan International Focus shares many traits with its more diversified sibling JPMorgan International Equity, but there are some differences. International Focus is benchmarked to the broader MSCI ACWI ex USA category index (which includes emerging markets), but International Equity is benchmarked to the MSCI EAFE Index, which excludes emerging markets. As of December 2023, International Focus' 12% emerging-markets exposure was well above International Equity's 1% but still represented a sizable underweight compared with the category index's 19%. The MSCI EAFE Index also excludes Canada, so International Equity won’t own Canadian stocks, but they can be owned in International Focus. As of December 2023, International Focus had 4% allocated to Canada, less than the category index's 8%.
Portfolio exposures reinforce that management is cognizant of balancing quality and valuation. Indeed, quality metrics like returns on invested capital have trended above the category index. At the same time, price multiples like price/earnings have typically been slightly higher than the category index over the years but well below the growth version of the index.
Japan has become a growing area of interest for the team, partially owing to improving corporate governance. The team added a handful of Japanese holdings since mid-2022 (through December 2023), including banking firm Mitsubishi UFJ Financial Group. That helps explain the portfolio’s Japan stake rising to 13% from 6% during the same period, now closely in line with the category index's 14%.