LONDON, UK: JPMorgan UK Smaller Companies Investment Trust plc (JMI) has announced that it has agreed to combine with JPMorgan Mid Cap Investment Trust plc (JMF) in a deal that will create a larger and more diversified fund focused on UK smaller companies, a statement noted.

The deal will be implemented by a scheme of reconstruction of JMF, which will result in the transfer of part of JMF’s assets to JMI in exchange for new JMI shares. JMF shareholders will also have the option to receive cash for up to 15 per cent. of their holdings, subject to scaling back.

The enlarged JMI will continue to be managed by JPMorgan Funds Limited, with Georgina Brittain and Katen Patel as lead portfolio managers. The fund will pursue its existing investment objective and policy, but with an enhanced dividend policy targeting a 4 per cent. yield on NAV per annum.

The deal will also result in lower management fees, a significant cost contribution from JPMorgan, a change of name to JPMorgan UK Small Cap Growth & Income plc, and the addition of three directors from JMF to the JMI board.

The transaction is expected to be completed in February 2024, subject to the approval of shareholders of both JMI and JMF, as well as regulatory and tax approvals.

The boards of JMI and JMF believe that the deal will benefit both sets of shareholders by creating a larger and more liquid fund with greater economies of scale and exposure to the UK smaller companies sector.

Benefits of the Scheme

The board of directors of both JMI and JMF believe that the Scheme has a strong rationale, which includes the following benefits:

• Scale: The enlarged JMI is expected to have net assets in excess of £430 million[1], creating a leading investment vehicle for UK smaller companies that provides exposure to fast growing, innovative companies that help drive the UK domestic economy and an attractive dividend yield. The scale of the enlarged company should improve secondary market liquidity for JMI’s shareholders and will allow for cost efficiencies;
• Lower Management Fee: Following completion of the Transaction, JPMorgan has agreed to reduce the management fee payable by the enlarged JMI from the current 0.65 per cent. p.a. on JMI’s net assets up to £300 million and 0.55 per cent. p.a. on net assets above £300 million to the revised 0.65 per cent. p.a. on JMI’s net assets up to £200 million and 0.55 per cent. p.a. on net assets above £200 million (the “New Management Fee”);
• Lower ongoing charges: Existing and new shareholders in JMI will benefit from an ongoing expense ratio reduction of c.20bps compared to the last financial year as a result of both JMI’s fixed costs being spread over a larger asset base and the recent and proposed management fee changes;
• Contribution to costs: As described below, JPMorgan has agreed to make a significant cost contribution in respect of the Transaction by way of fee waiver, which is expected to offset some of the direct transaction costs for JMI shareholders;
• Three year continuation vote: The enlarged JMI will retain JMI’s existing continuation vote which is put to shareholders every three years; and
• Shareholder diversification: The Transaction will allow a number of shareholders to consolidate their holdings across the two companies while also creating a more diverse shareholder base.