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‘When’ is the question on most investors’ minds at the moment - ‘when will equity markets recover? When is the best time to buy? When to sell?’ Though they’re questions we can’t help but ask ourselves, it’s useful to remember that even at the best of times it’s impossible to time the markets - and that’s before you have a global pandemic to factor in.

That’s why Scott Davis, manager of the JPM US Select Fund, doesn’t worry about asking ‘when’. His is an investment philosophy which strips out macro distractions and operates with an eagle-eyed focus on individual stocks and their fundamentals.

In his view, ‘so often people get wrapped up in trying to time the market - thinking about the macro too much; thinking about growth vs value. You want it to be all about good old-fashioned stock selection. And that’s what we do.’

Recently, my colleague Daniel Lane caught up with Davis to discuss the fund and his investment approach.


All the small things

Davis aims to invest in attractively-valued, long-term opportunities across the US equity market, drawing on an experienced analyst team that conducts rigorous, bottom-up analysis of chosen stocks. This approach has made his fund one of our experts’ Select 50 choice of favourite investments.

His strategy boils down to three key tenets - having the right people, focusing on the right things, and thinking about the right risks.

Those ‘right people’ are Davis’ 25 senior analysts, each with an average 20 years’ experience in the industry, who form the bedrock of his micro-focused approach. They’re what puts him in the best position to focus on the ‘right things’ - to invest in stocks which are attractively valued, and whose growth potential looks strong over the long term.

For Davis, thinking about the ‘right risks’ is vital. He aims to neutralise macro risks by focusing on individual stocks’ prospects for prolonged performance, rather than worrying about which will respond well to short-term market movement.

It is through this lens that Davis observes macro influences like the pending US election. For him, it’s ‘not an opportunity, it’s a risk we have to control.’ Davis does not ignore macro factors - rather, he manages them to ensure they do not dictate his strategy. As he explains, ‘we can focus on the micro, but you still have to be aware of the environment you're operating in’.

Long-term potential

For Davis, trying to pick short-term winners is a ‘fool’s errand’. He feels that thinking in terms of years rather than weeks and months gives him immediately an edge in the widely-dissected US market. He also sets himself apart from the rest by focusing on evidence of ‘secular structural change’ - that is, understanding which companies are undergoing positive change, and whether the trajectory of that change is reflected in their valuations.

Clearly, large tech stocks have dominated US markets recently, and when asked about whether he feels their success leads to mis-pricings, Davis’ response is refreshingly honest- ‘it depends’. Again, for him it’s all about the individual stocks - ‘you really need a research team behind you to navigate because some of them are overpriced, in my mind, and some of them are not. And so we have to pick and choose.’

Indeed, a lot of those US tech giants take sizable positions in the fund. Its second largest holding is Amazon, comprising 5.9% of total assets. As Davis explains, Amazon’s popularity does not entail that it must be over-valued - for him, ‘it's a very strong opportunity. It has done very well and we're sticking with it’.

For this manager, investing is all about strong, fundamental, bottom-up stock analysis - it’s not about timing the market. Whether looking at market leaders like Amazon, or unknown value opportunities, the question he asks himself isn’t ‘when’ - it’s ‘what’.

More on the JPM US Select Fund

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser

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FundsNorth America

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