JPMorgan manager outlines multi-asset approach
Olivia Mayell, client portfolio manager for the JP Morgan Global Income Fund, says the ongoing environment of low yields in the wake of monetary policy decisions is a key driver of demand for multi-asset across Europe.
What is your definition of multi-asset?
A multi-asset approach is an optimal strategy for investors seeking higher, more stable yield. This means diversifying across income-generating asset classes through a flexible, global investment approach. Investing tactically in a wide range of income-producing assets globally on a risk-adjusted basis is another key characteristic. Spreading risk across multiple asset classes and tapping into diverse sources of yield enables a successful multi-asset strategy to provide regular income even in diverse market environments.
How long has this been part of the JPM offering?
JPM Global Income fund was launched as a Lux-domiciled Sicav in December of 2008. JP Morgan Asset Management’s multi-income strategy began as a US mutual fund, which was launch in the autumn of 2007.
What is driving demand for multi-asset?
A significant outcome of the European Central Bank’s long-term refinancing operations was to push interest rates as low as possible. While this lowers borrowing costs, encouraging businesses and individuals to spend more, thereby stimulating growth, it also means European investors are unable to generate attractive yields from traditional sources of income, such as cash and government bonds.
Not only are the yields on traditional income assets failing to meet investor income needs, they are also below the rate of inflation, meaning investors are losing money in real terms. Against this backdrop, many investors are considering the benefits of more aggressive income-generating assets across the fixed income and equity spectrum, including high dividend-paying stocks, convertible bonds, real estate securities, high yield and emerging market debt.
Are there distinctive demand drivers in individual European markets, eg, German investors may be looking to multi-asset for slightly different reasons than Italian or UK ones?
Southern European investors have been particularly interested in diversified multi asset income funds as they look to diversify away from their domestic fixed income holdings.
In Northern Europe the assumption that there will be lower rates than history for longer is driving investors to invest in a broader range of asset classes for income.
How does a multi-asset strategy deal with issues such as the much talked about ‘Great Rotation’?
Within JPM Global Income fund we are meaningfully rotating the portfolio into risk assets, particularly global equities. We perceive that it will be a gradual process, but we do see a shift in investors moving from bonds into equities. Although the monetary policy environment may well be changing in the wake of the Fed’s tapering announcement, we remain positive on risk assets. Fiscal policy is still weighing on growth, but austerity is starting to diminish in Europe.
Currently, our highest conviction trade in the portfolio is global dividend equities and that accounts for about 40% of the total AUM. We think in particular that relative valuations in Europe look attractive and that risks have receded.
How has multi-asset investments in underlying European assets been affected in recent years by the uncertainty surrounding the eurozone/sovereign debt crises/global crisis, then recovery, then uncertainty?
The significant overhang of macro-uncertainty has brought the importance of security selection to the forefront. Risk aversion and high asset class correlations have created opportunities for active managers to add value with selective stock and bond picking. Meanwhile, investors reluctant to take specific credit and equity risk as a result of this uncertainty have gravitated towards more diversified multi-asset approaches that offer to balance risk across asset classes.
How do alternatives fit into your multi-asset universe, eg, are you using absolute or total return strategies to manage portfolio risk, or using any other private equity/real estate/commodity plays for particular reasons, and if so why?
Asset allocation of this strategy spans a broad range of asset classes, many of them non-traditional, as it seeks to tap a broader income opportunity set. Examples of non-traditional allocations would include approximately 10% of the fund holdings in non-agency mortgages. Another non-core area of the portfolio would be convertible bonds, which offer bond-like income with equity-like upside potential.
This strategy is also able to use financial derivative instruments to gain exposure to best investment ideas.
This strategy generally does not utilise private equity allocations or other alternative investments. Avoiding these asset classes allows the fund to maintain adequate liquidity. The strategy does have exposure to property, but this is largely achieved via REITs which offer daily liquidity.
How efficient are multi-asset products for investors in terms of TER – more generally speaking across the industry, as would be interesting to hear.
Directly invested multi-asset funds, rather than funds of third party funds, typically have lower TERs which is appealing to investors looking for cost effective solutions for income.