JP Morgan – 2025 mid-year investment outlook: U.S. equities – Renaissance U.S. Equity Value Fund

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[JP Morgan – 2025 mid-year investment outlook: U.S. equities – Renaissance U.S. Equity Value Fund]

[Featuring Jaime Steinhardt, Managing Director and Investment Specialist, JPMorgan U.S. Equites – Value]

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>> Jaime Steinhardt: Hi. I'm Jamie Steinhardt. I'm a Managing Director here at JP Morgan Asset Management, and I am a US equity investment specialist responsible for communicating the investment philosophy and process of our US equity value based strategies. There is no doubt that it has been a bumpy first half of the year, while in the first half of the year, you look at the rest of 1000 value and the rest of 1000 growth, you got an identical return, 6% in either asset class, but the ride to getting there was quite different. That, to me, paints the opportunity for us as value managers, and really why we should be excited not just about what's happened, but what we expect to happen for the remainder of the year.

Really interesting, as we saw briefly, the S&P 500 went into bear market territory, we saw the VIX spike above 50 in April. We saw a massive gap out in performance. At that time, the Russell 1000 value outperformed the Russell 1000 growth by 11%. Really, 1h 2025 was a great reminder of the importance of having value diversification and downside protection within client portfolios. As we look out for the remainder of the year, we continue to be constructive on our asset class. The reason being that we see very wide valuation spreads across the market, as I always like to say, it is a market of stocks, not a stock market.

Today, while the median stock is more expensive than the historical average 19 times, versus historically, 16 times, the spread between the cheapest and the most expensive stock within the market has gapped out dramatically, at 17 points today, versus historically, an average of 12 points. That is the opportunity that we see as active managers, especially given our valuation discipline to take advantage of that opportunity that we are seeing within the marketplace today.

When I think about this investment mandate, we are looking to invest in quality companies at reasonable valuations, really identifying those quality compounders over the long term. When we saw the market sell off, that gave us an opportunity as active managers, to take advantage of our shopping list. In fact, we initiated eight new positions in the portfolio this year, which for a strategy that has historically had below 20% turnover is a lot, and really being able to take advantage of that window of opportunity.

In particular, the two areas that I would call out of interest for us were number one, the financials and number two, the industrials. With respect to the financials, we see an improving regulatory backdrop, and with that, we would expect the banks in particular, to benefit from improved return of capital to shareholders via dividends and buybacks, stronger M&A activity, in addition to improved loan growth. So you think about that inflection in fundamentals paired with the fact that the valuations are still quite attractive. Typically, the banks trade at a 25% discount to the broader market.

Today, they're still trading at a 50% discount to the broader market. So the point being that that improvement in fundamentals in combination with an attractive starting point from a valuation standpoint, makes us incrementally excited about the opportunity set there. Beyond taking the opportunity to add to our bank allocation within the portfolio, we were also leaning into pockets of the industrials that are beneficiaries of the long term secular growth that we see tied to AI. Specifically, as I think about the trend of the electrification of everything and we own companies that are tied to power management. And so therefore, as they have their customers as hyperscalers or data centers, they are seeing their revenues expand.

This broader sell off that we experienced in that March, April timeframe was a great opportunity for us to add to some of these secular winners at much better prices. I think the key point that I would want to get across is the fact that we are quality first managers with a valuation discipline, and that is especially helpful for us when we do see these bouts of market volatility, to take advantage of new ideas and add to existing positions within the portfolio. But again, being mindful of those two sectors that are most interesting or where we have been most active, are within the financials and industrial sectors.

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