26 March 2026 (pre-recorded 18 March 2026)
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[INTRODUCTION]
Staci West (SW): Welcome back to the Investing on the go podcast brought to you by FundCalibre. Dive into the balance between quality, valuation and momentum, while also examining the outlook for European equities today.
Darius McDermott (DM): My name’s Darius McDermott, and this is the Investing on the go podcast from FundCalibre. Today I’m delighted to be joined by Alexander Fitzalan Howard, who is the fund manager on the JPMorgan European Growth and Income Trust. Alexander, good morning.
Alexander Fitzalan Howard (AFH): Good morning.
[INTERVIEW]
DM: So this is your first podcast with us, so we thought we’d take a little look under the bonnet, so to speak. This is a core European product. You are looking to generate sort of steady and incremental returns and alpha, tell us a bit about how you go about achieving that.
AFH: Sure, well you are absolutely right that yes, we have tried to position the portfolio as a core holding and the aim is to generate that sort of steady incremental alpha in different market conditions, if possible. And that’s quite important. [DM: Yeah] And I think that’s quite different from a lot of our competitors. And in terms of trying to explain how we approach that, I think there were three key things I wanted to touch on.
The first is the sort of companies that we want to invest in. We’re looking for stocks that have all or some of the following sort of characteristics or attributes or whatever, and they are quality. And by that we focus a lot on profitability of the company, so things like return on invested capital and capital allocation. And we think that is really the best way for us, for the market to judge management, you know, are they using our resources, your resources, shareholders resources properly. Generally we prefer companies that return money to us to shareholders, either through dividends or share buybacks. So quality is very important.
The next characteristic that we focus on is valuation. And there is really no point in buying a stock if all the prospects have al have already been discounted by the market. But at the same time, we’ve got to avoid the companies that are cheap for a reason. Well, you know, people know as sort of value traps. [DM: Yeah]
So it’s important to stay clear of them. And I think a lot of investors over the last few years have tended to ignore valuation and focus more on quality and growth and, you know, we want that value within our portfolio.
And then the third characteristic is momentum. And really we are looking for companies where the operational momentum is improving. And for us, that’s best captured by earnings revisions. So in terms of what we’re looking for in investments, we want to combine those three things: value, quality, and momentum. And that gives the portfolio style diversity, which helps generate that steady performance. So that’s one aspect. [DM: Yeah]
The other two things the way we go about finding investments I think is a bit different from other people. So we use a mixture of quantitative or data research and more fundamental research. And the advantages of the quantitative side is it lets us go right down the market cap scale gives us great breadth of coverage which is a bit different. So it gives us more opportunities to look at.
And then the third really, really important thing for the core portfolio is that we spend a lot of time focusing on risk management and portfolio construction. So we really want to avoid unwanted incidental risks. We run the portfolio with very tight sector and country limits. We’re really focused just on stocks and everything within that is focused on trying to build that balanced, diversified risk control portfolio that we think helps to, to generate that steady performance.
DM: And and how many stocks do you typically have in the portfolio then?
AFH: We are currently about a hundred. So it’s very diversified. I would say the range is sort of about 80 to 120, something like that. So again, quite different to some of the people out there. You know, this is not a sort of 20 or 30 stock portfolio, much more balanced bridge.
DM: Yeah, well that’s just saying there’s room in the market for everything isn’t there concentrated and nicely diversified core offering that you are trying to achieve. So one thing, I’ve been doing this job for a number of years, so I sort of think I know what you mean by momentum, but maybe we could just touch on that a little bit more for our audience. You said it’s a key part of what you look for and you mentioned earnings revisions. Maybe sort of dial into that a little bit more detail and if you have an example, please feel free to share.
AFH: Sure, I mean, as you say, it is a very important part of our process and when we look for companies that are got sort of underlying improvement in their business, the way that we think that is best kind of shown in the market is what is happen and means is upgrading their forecasts for what the company is going to achieve or downgrading it. So our analysts raising their estimates or cutting them and we think that’s a really key catalyst for stock price moves. Let me give a couple of examples maybe sort of illustrate. [DM: Yeah]
Probably the standup sector in the market where this has worked on a positive basis over the last few years is the banking sector. And I think investors were slow to recognise that the banks have been recapitalised and restructured after the great financial crisis and they got themselves into a much better place where they had not only strong balance sheets after all the historic problems, but were also generating much better returns on their capital. And since then, for the last three, four years, they’ve been generally beating expectations when they report their quarterly earnings raising guidance. And analysts have been forced to raise their earnings estimates and that I think has helped that sector, you know, perform really well over the last few years. And for us, one of our big, well, in fact our biggest holding throughout last year was Uni Credit, which is an Italian bank like that. That’s been the sort of poster child for that and it’s really helped our performance mean.
DM: I was just going to say, do you wait for two quarterly earnings upgrades or is it four or is this you and your team’s estimate of those earnings? Or are you waiting for those sort of to take a turn in momentum, if you like. [AFH: Sure] How does that actually work?
AFH: It sort of depends. When we see when we see that change and we are looking initially at consensus earnings estimates, we really want to dig in and see if that we think that is sustainable or whether it’s a sort of one-off fluke, if you see what I mean. [DM: Yeah] So there’s no set timing. I mean, maybe I’ll give you another example on the other way around because this works both ways. [DM: Yeah, yeah, absolutely]
Of course. I don’t know if you know the retailer Inditex Spanish retailer operates brands like Zara. [DM: Yes] It is probably the best retailer in Europe. Had a tremendous track record of growth and beat expectations and all of that driven really by its storing program and tremendous execution. So very, very efficient. So it did very well. As a result, it became quite expensive. And then at the end of 2025 they missed earnings, both sales and margins came in below expectations. That was the first miss that company had had for a long time. We started to sell straight away after that. We weren’t gonna wait for that downtrend to be confirmed. See what I mean? That was a bump in the road and that for us, that was a warning signal.
DM: So let’s talk a little bit about European and macro things. What’s going on? Because I think when you when when we agreed to do this podcast with you a few weeks ago, things have clearly changed even since then with this sort of global macro picture. But one thing that sort of happened in 2025 was sort of a big announcement, particularly from Germany about spending more on infrastructure and defence. Now that’s become even more topical in the last three weeks or so. How do you think that’s playing out and is it just the European defence stocks that are interesting? But I’m sure they’re not cheap either.
AFH: Yeah, I mean I think that kind of event that you referred to of the Germans releasing their debt rates so they could spend more money on defence and infrastructure was a really, really significant moment for Europe. And you know, the German governments had generally been incredibly conservative with a small state and you know, the idea of borrowing more money and spending, it was just so against the culture that that was a big moment. And if you combine that with lower RA interest rates in Europe, we were finally starting to see, for example, German factory orders increase. And the various sort of construction indicators moving into positive territory after quite a long time in negative territory. So really positive sign.
In terms of defence, we have a little bit of exposure in the portfolio. We own for example a company called Chem, which is a German chemical company, which amongst other things makes explosives. We took part in a new IPO of a company called CSG that makes ammunition. And we own Safran, which is, you know, a French company that does avionics for example. So all that sort of stuff. We don’t own Mattel, which is the sort of big German defence company. We missed the big rally, which was in sort of 2024 and beginning of 2025. We just thought it was too expensive. We now think it’s definitely too expensive and it’s getting earnings downgrade. So going back to our previous comments, it’s not something that works for us at the moment, but we’re watching it very closely. So we have a little bit of defence infrastructure. Yeah, lots of different things going on there. Generally very positive. I mean, it goes from sort of Siemens at the mega-cap end that operate in the power sector and transportation and so on.
Companies like PRIs, which is an Italian company that makes cables very big for the grid grid system, which all needs to be renewed across Europe. Big German utilities, Eon and RWE right down to, you know, pretty small companies like Fin which again is a German company, but it focuses on factory and plant sort of optimisation and efficiency and so on. So there are lots and lots of potential beneficiaries out there.
As you said, there’s a bit of a sort of rock being chucked into the pool recently by what’s going on in Iran and I’ve got no crystal ball. No, but I think it really depends on how long the conflict goes on for prolonged disruption. And obviously there’s all chat in the news at the moment about the Strait and all that prolonged closure of that is going to be a problem.
DM: Yeah. I mean it’s going to be bad energy prices and presumably the inflationary effect that might inflict on all parts of the economy, I’m sure.
AFH: Yes. And it will slow growth. Yes. So, so we, you know, potentially have a difficult situation that, I mean in the short term, you know, the index has come back, I know maybe 6-7% or something but there’s been quite a lot of rotation underneath the surface and hedge funds sort of degrossing and taking risk off the table and so on. So it’s been quite volatile the last couple weeks…
DM: Which I think one might expect in when you’ve got a global sort of major conflict. So let’s maybe get back on the positive, but European equity actually had a really good time in 2025. It for for for once. It wasn’t just a story of the US and Mag 7 and AI. [AFH: Absolutely] Given that Europe had such a strong time, and if we could just overlook the last few weeks where, as you say markets have come off, do you still think there’s good value in European equities at a broad level?
AFH: Yes. I mean the two angles here, I mean, as you say, it obviously performed really well. So valuation has gone up a bit relative to the US still a massive discount, but I think almost more important that the valuation spread within Europe is still positive. So there’s still a big gap between the most expensive stocks and the cheapest stocks. And that is continuing to narrow and because we have a exposure to value within our portfolio, that’s good for us. [DM: Yeah] So the most expensive stocks are getting a little bit cheaper in relative terms and the cheapest stocks at rerating a little bit. So that should help us. And that means we think that’s still a lot of stock picking opportunities out there. So yes, we remain very positive.
DM: One area that you briefly touched on was smaller, maybe mid-cap companies and you referenced your data abilities and your quant to give you a head start when looking for mid and small companies. A) how much do you typically have in in the trust and B) have they been additive or negative in the last period? Because smaller companies have generally underperformed globally maybe ex Asia but certainly in the states, UK and Europe. So yeah, if we could touch on that part of the portfolio.
AFH: Sure. We tend to kind of use non benchmark exposure as the proxy for that. By non benchmark hydro, I mean European companies that are not in our benchmark index, so we’re not rushing off to buy Tesla or Nvidia or something. And at the moment about 13% of the portfolio is non benchmark and that if you look back over the last five or 10 years, the range, it’s probably been five to 20. So we’ve probably got a bit more than average in small-cap. We don’t take a sort of decision we want to increase or decrease our small-cap weight all comes from the bottom up specific. And over the last year in general that’s been quite helpful.
So we’ve had some, we’ve had some good small companies that probably haven’t heard of sort of by definition things, things like Class, which is a little retailer in Sweden, it’s done very well. I mentioned Bill Finger earlier. They’ve done well. One or two things haven’t done well. I mean we’ve got a holding in can homes, this Irish house builder didn’t perform last year. It’s picked up a bit this year and we’ve got a holding in our, in, well in the JP Morgan Discovery Investment Trust, which is our specialist small-cap.
DM: Right, so you take, you can get some broad exposure that way as well.
AFH: Get a bit of exposure to that. And that has started to perform really well after a tough couple of years. Yeah. So in general that’s helped us. I mean, I think, you know, small-cap historically been fantastic last few years until last year not so good. I think after the announcement of the Trump tariffs last April there was a bit of a switch of focus away from the big multinationals who were more exposed to the tariff to more domestic companies. And that generally benefits smaller companies and small-cap also generally traded a big discount to the market.
DM: It certainly did. Yeah, absolutely. So let’s touch a little bit on European banks. You mentioned Uni Credit earlier. They’ve had a tremendous run, I suggest they were probably at very, very attractive starting valuations, but it’s not like one year they’ve broadly banks, European banks have had a very good couple of years now. What’s your view on valuations and are they still seeing that earnings momentum that you like and is there more to go for?
AFH: I think there is, yes. I mean profit growth in the banking sector generally has been so dramatic over the last few years that despite the good performance, the PE multiple, the price earnings multiple has hardly expanded at all because the profit growth has been so big and it’s still below the level at which the sector normally peaks out. In terms of book value, there has been a rer so the banking sector say in 2022 was trading on maybe 0.5 times book value and now it’s trading on, I don’t know, roughly 1.5 times book value. But the key there is that the returns that the banking sector are making have expanded dramatically. So it’s gone when they were valued at half times book value, they were making maybe low to mid single digit returns and now they’re making sort of mid-teens to even over 20% return. So I think that ING is just justified.
And estimates that generally are still rising, we are starting to see a bit of loan growth come back into the sector that could drive the next leg of earnings upgrades. So basically we’re still very positive. Having said that from our point of view, it became our biggest overweight sector and banks kind of feature highly in, you know, momentum and cyclical and over the last quarter we’ve just been trimming that bit. [DM: Yeah] Fundamentally we’re still very keen on them.
DM: And that absolutely fits to your opening comments about core diversified stable sort of returns. [AFH: Exactly] Let’s just touch a little bit on other financials, which I think you are less keen on. Do you wanna talk a bit about the exchanges or other financial services companies?
AFH: Sure. I mean we own within that sort of space we own asot, which is an Italian asset manager that’s been doing well, basically gathering lots of assets. We own a bit of Deutsche Bank. We’ve got a big underweight position in UBS and that is really because we think there are still concerns that they may have to raise more capital. So we’re a bit cautious there. And then as you rightly point out, we don’t or we have historically been pretty cautious on the exchanges. So Deutsche Bank and which is the German one and <inaudible>, which is the French Exchange. We used to own them. We sold out them sort of end of 2024 really because they’d redone very well and re-rated got too expensive for us. We were a bit early, they continued to perform but then they underperform quite a lot in the rest of last year. They now de-rated a lot.
One of the reasons they derated was because they were perceived as AI losers with all that, the very sort of data heavy business. [DM: Yeah] I’m not sure if that’s the sort of merited, but they got kind of swept up in the downdraft. And currently all the volatility of the market exchanges are quite big beneficiaries of that because you’ve got a lot of activity trading and so we’re looking at them more positively actually at the moment.
DM: Cool. And maybe just to sort of wrap this up and either as this is your first chat with us, this is a core product and you mentioned UBS being an underweight and clearly all fund managers, whether they say so or not, or at least aware of their benchmark is do you are on the really big stocks worry about sort of being underweight? You know, obviously the, honestly the GLP November, this was a very big stock a few years ago. Was that something you felt you had to have a bit of or if those as it was very much the case, the earnings started to turn against them, we don’t have to have any, even if they are big stocks.
AFH: No, because it’s a core product. We are benchmark aware and we do own one or two things, you know, where we have a big underweight, but we do do have some exposure and I think that’s all part of the sort of risk management approach. And you know, Novo would be an example of that. At times LVMH has been an example of that.
So we want to just not have too much risk, and risk in the portfolio can come from having too big and underweight as well as having too big and overweight. So yes, we do manage it on that basis. I mean, sorry, not UBS, which we mentioned earlier is another example where we have a bit of exposure, but it’s a big underweight for us.
DM: Yeah. So you’re expressing your view in not liking it by holding a considerably less than the benchmark waiting, but not having zero and taking away from that core nature of the product.
AFH: Exactly. Exactly.
DM: Alexander, thank you so much. That’s been really useful introduction into the JPMorgan European Growth and Income Trust. Thank you very much, Alexander.
AFH: Thank you very much.
SW: JPMorgan European Growth & Income is a core European trust designed to give investors consistent returns across a variety of market conditions, while also targeting a 4% annual dividend. To learn more about the fund, please visit fundcalibre.com and don’t forget to subscribe to the Investing on the go podcast, available wherever you get your podcasts.
