Multi-assetJun 8 2015

Fund Review: JPM Multi-Asset Income fund

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Co-manager Talib Sheikh notes: “It aims to produce a regular, attractive level of income, with the flexibility to choose from the best opportunities across asset classes, sectors and markets. It maintains a traditional balanced risk profile, similar to a 60 per cent equity, 40 per cent bond portfolio.”

The fund is managed by its global multi-asset solutions group, with asset allocation by Mr Sheikh and his co-manager Michael Schoenhaut. They draw on quantitative analysis and qualitative input from the group’s strategy team, plus bottom-up insights by asset class specialists.

Pre-2012, the fund was more static in its asset allocation, holding a diversified mix of equities and bonds, including meaningful exposure to high yield bonds. This, says Mr Sheikh, “was a reflection of the risk premia available in such asset classes. Virtually all risk assets performed strongly during the post-financial crisis period because valuations were low and risk premiums were high.” He adds: “Today, that risk premia has all but disappeared as quantitative easing efforts by central banks around the world have inflated asset prices. As a result, the asset allocation of JPM Multi-Asset Income fund has evolved dynamically.”

The manager reveals the portfolio has a high conviction to European equities as a source of attractively valued income. The fund’s equity allocation is predominantly to global equity. “Within that, we have increased our allocation to European equities, which we think offer attractive yields, decent valuations, and are significant beneficiaries of easy monetary policy,” says Mr Sheikh. “The ability to capture approximately 4.5 per cent dividend yield in Europe looks compelling relative to a current average 3 per cent dividend yield on the MSCI World index.”

European equities make up about 50 per cent of the fund’s exposure to equities, which accounts for 42 per cent of total fund assets. “This increased allocation has been funded predominantly from global equity to maintain current equity exposure and partly from emerging markets equities, given the asset class’s vulnerability to commodities and headwinds from a stronger US dollar,” says Mr Sheikh. The fund sits at level four on a risk-reward profile, while an ongoing charge of 1.43 per cent applies to the clean A retail share class.

Mr Sheikh says the fund has delivered first quartile returns over three and five-year periods and achieved superior yield versus most of its multi-asset income peers. Over three years to May 27, it delivered 33.40 per cent, beating the Investment Association Mixed Investment 20-60% Shares sector average of 28.41 per cent, according to FE Analytics. In five years, it has generated a 49.46 per cent return, well ahead of the sector’s 36.53 per cent. The manager says European equities have added to performance. “We continue to have a high conviction in preference shares, which have also performed well,” he points out. “We often access preference shares in the US financials sector. Whilst we limit our exposure to preference shares due to their relative illiquidity, we are constructive on the fundamentals for the asset class.”

The fund’s underweight to emerging market equities and emerging market debt has hurt it recently. “However, we are not prepared to increase our exposure to those asset classes at this point,” he says. “Macroeconomic challenges from weakening currencies, declining commodity markets and fund outflows continue to weigh on investor sentiment.” The portfolio has an allocation of 3.6 per cent to emerging market equities and 7.2 per cent to emerging market debt.

Mr Sheikh adds: “In our view, the last five years have predominantly been about investors selling fixed income-type investments in order to buy equity-type investments, largely incentivised by central bank monetary policy. We think we may be on the cusp of approaching a new phase, in which investors begin to think about asset allocation less as a broad brush differentiation between asset classes and start to concentrate much more on what they hold within asset classes as well as their regional exposures. In that context, we continue to drill down into regions such as Europe as part of the hunt for risk-adjusted income opportunities.”

EXPERT VIEW

Ken Rayner, director, Rayner Spencer Mills Research

JPMorgan has the resources to manage a global income strategy of this nature with teams spread across asset classes and geographies. This is important given the emphasis on the use of internal specialists to provide returns. The top-down asset allocation view is also expected to help drive returns but more through longer-term allocations with some shorter-term tactical allocations to other non-core asset classes. This fund represents a strong option for investors looking for diversification and an attractive level of income.