A bruising year versus the Russell 2000 – what happened
JPMorgan US Smaller Companies Investment Trust (the Trust) reported a NAV total return of -10.9% for the year to 31 December 2025, sharply underperforming its benchmark, the Russell 2000, which delivered +4.8% in sterling terms. The share price total return was weaker at -15.3% as the discount to NAV widened from 1.8% to 6.7% (average 7.3% over the year).
In plain English: NAV total return is the change in the Trust’s net asset value with dividends reinvested. The gap to the benchmark reflects a year when speculative, AI-linked shares did most of the heavy lifting while quality-at-a-reasonable-price lagged. Over five years, the Trust’s NAV is up +12.0% versus +35.2% for the benchmark; the five-year share price total return is +2.7%.
Why performance lagged – narrow markets and missed winners
Management points to a narrow market where AI-related and speculative themes – from bitcoin miners to “meme” stocks – dominated returns. That made life tough for a portfolio focused on durable franchises, good management and sensible valuations.
- Attribution tells the story: stock selection detracted -16.5%, while asset allocation added a modest +0.4%. Share buybacks added +0.9% and the management fee/other costs were a -1.0% drag.
- Key detractors: WillScot (modular offices and storage) on weaker revenues and a cautious outlook; Freshpet (premium pet food) on slower sales and stiffer competition. The portfolio’s underweight to healthcare also hurt because the sector’s strength came from biotech – an area the team generally avoids on profitability and valuation grounds.
- Bright spots: Five Below and BJ’s Wholesale Club in consumer discretionary, and RBC Bearings in industrials/aerospace supported returns.
The team stresses a meaningful chunk of the gap was “opportunity cost” – not owning benchmark names that surged on speculative momentum – rather than a raft of outright mistakes in the portfolio.
Discount, buybacks and a fee cut – tangible actions
The Board leant into buybacks to support the share price. In 2025, the Trust repurchased 6,886,958 shares into treasury, equal to 11.4% of shares in issue at 31 December 2024, at an average 9.3% discount. Since year end, another 1,607,113 shares were bought back at an 8.0% average discount (to 15 April 2026). That programme added 0.9% to NAV return – a welcome, value-accretive use of capital in a discount year.
Costs are moving the right way too. From 1 January 2026, the management fee is 0.70% per annum on net assets up to £300 million and 0.60% above that, instead of 0.70% on gross assets (which previously meant a fee on borrowings). The Ongoing Charges Ratio for 2025 was 1.00%. Charging on net rather than gross assets should lower ongoing costs, all else equal.
Dividend and cash tools – small but steady
The Board recommends a final dividend of 3.2p per share for FY25 (up from 3.1p). Subject to approval, it is payable on 10 July 2026 to shareholders on the register on 12 June 2026 (ex-dividend 11 June 2026). This is a capital-growth trust, so income is modest and will typically track the portfolio’s underlying dividends rather than a target yield.
Gearing – borrowing to invest, which amplifies gains and losses – ended the year at 9.7% (2024: 7.7%). The Trust refinanced its facility in March 2025 with Bank of America: US$35 million with a US$5 million accordion. At year end it had drawn US$35 million (£26 million).
Portfolio positioning – quality bias, with notable underweights
The managers continue to hunt for high-quality companies trading below intrinsic value. After 2025’s dislocation, they selectively added to favoured names and trimmed riskier cyclicals and rate-sensitive holdings.
- Largest overweights: industrials, then financials.
- Largest underweights: healthcare, technology and telecommunications (notably limited exposure to biotech and certain AI beneficiaries).
Translation: if speculative growth keeps leading, relative returns may stay choppy; if markets broaden and fundamentals reassert, the portfolio’s tilt could be well placed.
Outlook for 2026 – small caps look cheap, but macro crosswinds remain
The Chair and managers are cautiously upbeat. Valuations of US small caps versus large caps are at historical lows, and small caps began outperforming after April 2025’s trough. Notably, small-cap earnings growth beat large caps in Q3 2025 for the first time in over three years – a potential sign of improving fundamentals.
Set against that, 2026 opened with geopolitical tension in the Middle East and higher energy prices, which have clouded the interest-rate outlook. The managers still expect solid corporate earnings growth in the US but flag risks from tariffs, the labour market and policy uncertainty. In short: a better setup for quality small caps, with volatility likely.
Governance and continuity – refreshed, not rewritten
Shareholders voted to continue the Trust for another five years at the June 2025 AGM. Board refresh is ongoing: Cindy Rampersaud joined on 1 November 2025; Christopher Metcalfe retired on 1 April 2026; Mandy Donald is now Senior Independent Director. The Board also completed a review of the Manager’s services, concluding the revised terms remain in shareholders’ interests.
Key numbers investors will care about
| Metric | Outcome/Detail |
|---|---|
| NAV total return (FY25) | -10.9% (sterling) |
| Share price total return (FY25) | -15.3% |
| Benchmark (Russell 2000, net) | +4.8% (sterling) |
| Five-year NAV total return | +12.0% (benchmark +35.2%) |
| Ongoing Charges Ratio | 1.00% (FY25) |
| Fee from 1 Jan 2026 | 0.70% on net assets to £300m; 0.60% above |
| Buybacks (FY25) | 6,886,958 shares (11.4%) at 9.3% average discount |
| Post year-end buybacks | 1,607,113 shares at 8.0% average discount (to 15 Apr 2026) |
| Dividend (proposed) | 3.2p per share; pay date 10 Jul 2026 |
| Gearing at year end | 9.7%; US$35m facility (US$5m accordion) |
| NAV per share | 428.5p (484.6p in 2024) |
| Discount at year end | 6.7% (from 1.8% in 2024) |
| Net assets | £230.2 million |
My take – the good, the bad, and what to watch
Positives
- Valuation support: US small caps look historically cheap versus large caps, and earnings momentum in late 2025 improved.
- Shareholder-friendly actions: sizeable buybacks at meaningful discounts and a fee cut to net assets should enhance value over time.
- Clear style discipline: quality and valuation focus has not changed despite a tough year, which can matter when market leadership broadens.
Negatives
- Performance gap: -10.9% versus +4.8% is a large relative miss, and five-year numbers trail the benchmark materially.
- Style headwinds may persist if AI/speculative themes continue to dominate, particularly given the Trust’s underweights in healthcare biotech and parts of tech.
- Gearing at 9.7% raises volatility; helpful in upswings, painful if markets wobble again.
What I’m watching in 2026
- Discount behaviour: continued buybacks could keep the discount anchored if sentiment improves.
- Breadth of the US small-cap rally: a shift from speculative leaders to broader quality would likely suit this portfolio.
- Stock-level turnarounds: updates from WillScot and Freshpet, and ongoing strength at Five Below, BJ’s and RBC Bearings.
Bottom line
2025 was a style-driven setback for JPMorgan US Smaller Companies Investment Trust. The Board’s buybacks and a cleaner, cheaper fee structure are sensible moves, and the valuation case for small caps is building. If market leadership broadens and fundamentals take the wheel, this quality-focused approach should be better placed. For now, expect some bumps along the road – but with a potentially improving risk-reward for patient investors.
