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JPMorgan Fantasy Fund Manager competition: Choosing the right plays for better performance
Putting yourself in the shoes of fund managers can be a daunting task. There has been a wholesale shift from the ‘big four’ asset classes of equities, bonds, property and cash to also incorporate multi-asset and absolute return vehicles. Then there is value, growth and income-based styles, thematic approaches, SRI concepts, capitalisation-based strategies and domestic versus global allocations all jostling for consideration.
The JPMorgan Fantasy Fund Manager competition provokes a short-term investment horizon, so the Investment Adviser team decided on some macro calls that would influence its portfolio.
None of us were confident about the UK’s outlook considering its sluggish growth forecasts, rising unemployment, reliance on the currently volatile financial services sector and that its political parties have no concrete plans on how to tackle the mounting public debt.
Consequently, Nick Rice, chief reporter, says his fantasy fund would hold little in sterling assets – no more than 20 per cent – over the next 12 months. In the short term, whether under Labour or the Conservatives, government spending will be stifled and higher taxes are likely as soon as green shoots turn into bright blooms, he claims.
While a low interest-rate environment has tempted many investors into ‘risk assets’, buoying the FTSE disproportionately to the domestic economic landscape, the only UK exposure my colleagues would take would be roughly 20 per cent in UK Equity Income.
Stephen Wilmot, acting deputy features editor, says: “It looks like things will drift up for another few months with investors still returning to the market. Defensives have yet to rally properly, which should play out to this sector’s advantage.”
Growth prospects
Personally, if I were forced to choose between JPM Premier Equity Income and JPM UK Strategic Equity Income – which is in the IMA Income & Growth sector – I would opt for the latter. Yes, it is a smaller fund – perhaps more nimble – and its volatility is an extra percentage point above the JPM Premier Equity Income (and almost 2 per cent above the sector average volatility) – but there’s no income generation without growth prospects in this sector, and that’s where my sights are set for this competition.
Anyway, in my fantasy portfolio, I’m happy to take a bumpier ride for the chance of extra performance. But if it were my pension or pay packet actually at stake, I’d probably think twice and the portfolio would look very different.
However, as it stands, I ignore my colleagues’ calls and the only UK exposure in my portfolio would come from 5 per cent in JPM UK Focus. This fund has outperformed its IMA UK All Companies peers, to return 38.3 per cent over one year. The sector average was a return of 31 per cent.
Like Nick, who would put 10 per cent of his fantasy fund allocation into JPM Global Equity Income, I would skew my portfolio away from the UK as much as possible, substituting domestic funds for global or overseas specific geographies. I would allocate 10 per cent of my fantasy portfolio to this fund.
John Kenchington, senior reporter, would utilise a bigger allocation.
