rob worthington jp morgan asset management · 2012-10-08 · the bank of england lowered interest...
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08/10/2012
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How to bring the benefits ofHow to bring the benefits of multi‐asset solutions to UK income portfoliosRob Worthington
JP Morgan Asset ManagementJP Morgan Asset Management
For Professional Clients only – not for Retail use or distribution
A multi-asset approach to
income investing
September 2012
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The search for income
We believe investors continue to require high levels of cash income
Bank of England
%levels of cash income
Traditional sources of income are insufficient– Bank deposits
Base rates were 5.0% in 2008, 0.5% now
– UK equity income
Dividends cut or even suspended
– UK investment grade corporate bonds
Overbought0
2
4
6
Base rate 30 June 2012
0.50%
%
ForecastBase rate
2012: 0.50%2013: 0.50%
Overbought
The Bank of England lowered interest rates to 0.5% in March 2009
Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
-2
Note: Real interest rates are calculated using core CPI and base rate. Source: Bank of England, ONS, Bloomberg consensus forecasts, J.P. Morgan Asset Management. Updated quarterly
Real interest rate May 2012
-1.71%
How to meet investors’ income needs
In our view advisors should consider:
Seeking new sources of income, alternatives to deposits
Global diversification, hedge currency risk
Active asset allocation – global multi-asset portfolios actively managed to find the best income investments
Increased diversification and less risk than UK equity income alone
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Equity dividends offer value globally versus history
5
2
3
4
5
Dividend Yield (%) Avg 10Y Dividend Yield (%)
Yie
ld (
%)
Source: MSCI, Thomson Datastream, J.P. Morgan Asset Management as at 30th June 2012. Updated quarterly. Past performance and yield are not a guide to future performance or yield..
0
1
US Europe ex UK Japan UK Asia ex Japan Emerging markets
A broader range of opportunities when you search outside the UK
FTSE All-World Developed Stocks yielding ≥ 3%No. of Companies
188
89
4168
113
6541
92
22
10
8
6
7
9
3
8
20
40
60
80
100
120
140
160
180
200
220
240Global ex UK UK
No.
of C
ompa
nies
p
41 41
0
20
Financials Consumer Discretionary
Consumer Staples
Utilities Industrials Materials Telecom Services
Other*
Source: FactSet, FTSE All-World Developed ex Emerging Markets, as at 30th June 2012. Updated quarterly. *Other includes Energy, Information Technology, and Healthcare.
... Almost 10 times more income opportunities lie outside of the UK
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Stock example – Global Equity: AES Tietê
Brazilian electricity generation company with one long-term contract to sell all of its firm capacity to Eletropaulo until 2015capacity to Eletropaulo until 2015
Stable margin profile – prices for contract with Eletropaulo adjusted for inflation every July. After 2015, AES Tietê will sell its energy at the spot rate
No major off-balance sheet contingencies or risks. Therefore, results are very predictable and the company delivers one of the highest dividend yields of all global utilities
Committed to 100% payout of net income
9.2% indicative gross dividend yield
Note: Bloomberg ticker is GETI3 BZ. Indicative gross dividend yield as of 30/06/2012. Position held as of 30/06/2012.. Source: J.P. Morgan Asset Management. . The information in this case study is intended as an example only and should not be construed as advice, it may not be suitable for your particular circumstances and if you are unsure of the suitability of any investment you should seek financial advice. Past performance is not a guarantee of the future. The opinions and views expressed here are those held by the author as at date of this document, which are subject to change and are not to be taken as or construed as investment advice. J.P. Morgan Asset Management may or may not hold positions on behalf its clients in any or all of the aforementioned securities.
High yield bonds – fundamentals are supportive
Spread over US 10-Year Yield, bps
2000
500
750
1000
1250
1500
1750
2000
0
250
99 00 01 02 03 04 05 06 07 08 09 10 11 12
Source: MacData. Data up to 18th July 2012
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The case for tactical allocation – convertible bondsA bond that can be converted into a predetermined amount of the company’s equity at certain times during its lifeUBS Global Convertible IndexCurrent Yield (%)
2
3
4
5
6
Current Yield (%)
Source: UBS, J.P. Morgan Asset Management as at 11th September 2012. Past performance is not a guide to future performance.
1
Jun-
01S
ep-0
1D
ec-0
1M
ar-0
2Ju
n-02
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Dec
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-03
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ep-0
3D
ec-0
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ep-0
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ar-0
6Ju
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ep-0
7D
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7M
ar-0
8Ju
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09S
ep-0
9D
ec-0
9M
ar-1
0Ju
n-10
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-10
Mar
-11
Jun-
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ep-1
1D
ec-1
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ar-1
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n-12
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-12
1,600
B
Credit ratings reflect improved fundamentalsEM external debt spreads and average credit ratings (inverted scale)
400
600
800
1,000
1,200
1,400
Cre
dit R
atin
g (in
vert
ed s
cale
)
B-
BB-
B+
B
BB+
BB
Developed Market CrisesEmerging Market Crises
Sp
rea
d (
ba
sis
po
ints
)
0
200
Aug
-93
Feb
-94
Aug
-94
Feb
-95
Aug
-95
Feb
-96
Aug
-96
Feb
-97
Aug
-97
Feb
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Aug
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Aug
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Feb
-00
Aug
-00
Feb
-01
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Feb
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Aug
-11
Feb
-12
Aug
-12
EMBI Global spread to Treasuries (left hand side)
Ratings (right hand side) BBB-
Source: J.P. Morgan Asset Management, August 2012 Note: The J.P. Morgan Emerging Markets Bond Index Global (EMBI Global) is representative of the sovereign debt market.
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A world of (shifting) income opportunities
Global High Yield
UK Corporate Bonds
Global Equity
UK Equity
Developed Sovereign
Debt
EM Sovereign
Debt
2007 2009 2012For illustration only. Yield as at 01 August 2007, 2009 and 2012 respectively from the following sources: BoA ML High Yield Index, BofA Merrill Lynch Sterling Corporate Bond Index, MSIC AC World Index, FTSE 100. Developed Sovereign Debt is the aggregate yield of German, US and UK 10 year bonds. EM Sovereign Debt is derived from the JP Morgan EMBI+
The challenge of growth against cost
Typical Historic Asset Regions
TER Yield ClassesRegions
UK Equity Income*1.69 3.84 1 3
UK Corporate Bond* 1.16 3.06 1 1
Fund of Funds** 2.33 2.95 Varies Varies
JPM Multi-Asset Income 1.43 5.17 6 8
*Defined as the top selling fund in respective IMA categories. **Defined as the top selling UK Income Fund of Fund. Asset classes are defined as: UK Equity, European Equity, North American Equity, EM Equity, Global Equity, Global REITs, Convertible bonds, Investment grade bonds, North American High Yield, European High Yield, EM Debt, Non-Agency Mortgages, Cash/Cash Equivalents have been excluded. Regional exposures are defined as: North America, Emerging Markets, Europe ex-UK, Asia ex-Japan, UK, Japan.
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Advisers need income solutions
Challenge Solutiong
Yield maximisation Achieve yield around 5%
Lack of diversification Global, multi-asset approach
Risk/volatility Lower volatility than equities, sensitive to downside risk
Asset allocation to best income source Active portfolio – reallocates to best yielding assets
T d l Di t i t t l fTransparency and value Direct investment, low fees
JPM Multi-Asset Income Fund
Yield of 4.9%*
Launched 30 June 2009
A multi-asset fund aimed at maximising income in a difficult environment– Historically lower risk than equity income funds
– Sensitive to downside volatility
Global diversified portfolio of: – high yield bonds, high dividend stocks, REITs, corporate bonds, emerging market debt, non-agency mortgages,
convertibles
Directly invested, with active asset allocation by the Global Multi-Asset Group
Income paid as quarterly dividends
Source: J.P. Morgan Asset Management as at 31st August 2012. * On the A (Inc) class shares, calculated in accordance with IMA guidelines. There can be no assurance that the fund will achieve the target returns. There can be no assurance that the professionals currently employed by J.P. Morgan Asset Management will continue to be employed by J.P. Morgan Asset Management or that the past performance or success of any such professional serves as an indicator of such professional's future performance or success.
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GMAG - Top-down market and economic views
Constructing an income focused portfolio
Formal quarterly meetings
Ongoing dialogue
Global REITS
Kay Herr
Investment Grade Bonds
High Yield Bonds
William Morgan
Emerging Market Debt
Global Convertibles
Antony Vallee
High Yield Equities
Gerd Woort-
Non-Agency
Mortgages
Asset class specialists - Bottom-up market assessments
Emerging Market Equity
Combining top-down insights with bottom-up input – a dynamic, collaborative process
y& team (NY) Lisa Coleman
& team (Ldn)
g& team (Cinn.)
Rob Cook & team
(Indianap.)
Pierre-Yves Bareau
& team (Ldn)
& team (Ldn)Menker& team (NY)
Steven Lear& team (NY)
Source: J. P. Morgan Asset Management as at 30 June 2012. There can be no assurance that the professionals currently employed by J. P. Morgan Asset Management will continue to be employed by J.P. Morgan Asset management or that the past performance or success of any such professions serves as an indicator of such professional’s future performance or success. Updated semi-annually.
Richard Titherington& team (Ldn)
Active asset allocation
Neutral allocation Current portfolio
JPM Multi-Asset Income Fund
Global equities
35%
REITs10%
Emerging market bonds
10%
Investment grade bonds
10%
Global equities
29%
Emerging market bonds
9%
Convertible bonds
4%
Non-agency mortgages
10%
Cash8%
Source: J.P. Morgan Asset Management as at 31st August 2012, updated monthly. Allocations are subject to change at the discretion of the portfolio manager without notice.
High yield bonds35%
High yield bonds34%
REITs6%
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Active tactical asset allocation to best income sourcesJPM Income Builder Fund
100%
20%
30%
40%
50%
60%
70%
80%
90%
For illustrative purposes only as at 30th June 2012. Updated quarterly. * In 4Q09, we changed our FI strategy. The fund was invested in Corporate Investment Grade Fixed Income. In 4Q09, we eliminated our exposure to corporate securities and purchased Non-Agency Mortgages. Allocations are subject to change at the discretion of the portfolio manager without notice.
0%
10%
Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12
Global Equity Global REITs Convertible Bonds Investment Grade Debt
Non-Agenct Mortgages US High Yield Fixed Income Emerging Markets Fixed Income Cash
Portfolio characteristics
Number of securities 745
Global equity 125
Regional breakdown
– Global equity 125
– High yield issuers 429
– REITs 56
– Emerging market bonds 23
– Convertible bonds 30
– Non agency mortgages 82
Average rating of bond investments B
C h d d t GBP
57.6%
8.3%
2.8%
5.0%
2.9%
1.7%
2.9% 5.2%North America
Europe ex-UK
Emerging Markets
UK
Australia/New Zealand
Asia ex-Japan
Currency exposure hedged to GBP
Source: J.P. Morgan Asset Management, as at 30th June 2012. Updated quarterly.
Japan
Cash
Source: J.P. Morgan Asset Management, as at 30th June 2012
The Fund is an actively managed portfolio; holdings, sector weights, allocations and leverage, as applicable are subject to change at the discretion of the Investment Manager without notice.
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JPM Multi-Asset Income Fund: attractive and regular income paymentsQuarterly payments assuming an initial investment of £10,000 at 30th June 2009
)
20050Quarterly Income payment JPM Multi-Asset Income Fund (RHS) Acc JPM Multi-Asset Income Fund (RHS) Inc
(
50
100
150
200
10
15
20
25
30
35
40
45
NA
V %
Change
Source: J.P. Morgan Asset Management. Fund inception date is 30 June 2009. Past performance is not a guide to the future.
£ £32 £156 £160 £176 £170 £140 £140 £144 £188 £164 £158 £1680
Jul 09 Oct 09 Jan 10 Apr 10 Jul 10 Oct 10 Jan 11 Apr 11 Jul 11 Oct 11 Jan 12 Apr 12 Jul 12
… maintaining an attractive dividend payment through volatile markets…
0
5
10
JPM Multi-Asset Income Fund performance
11.2 11.411.510 1
12.512
16Fund Benchmark
As at 31st August 2012
Return (%)
6.03.7
11.2
8.8
5.8
3.1
10.1
0
4
8
12
3 months 6 months 1 year 3 years Since Inception
3 months 6 months 1 year 3 years Since inception
JPM Multi-Asset Income Fund 6.0 3.7 11.2 8.8 11.4
IMA Mixed Investment 20-60% Shares 4.2 0.7 6.2 5.8 8.6
Source: J.P. Morgan Asset Management. Fund returns net of A share class fees and assume dividends are re-invested. * Fund inception date is 30 June 2009. Past performance is not a guide to the future. The value of investments and the income from them may fall as well as rise and investors may not get back the full amount invested. Performance for periods greater than 12 months is annualised.Customised benchmark: currently 40% MSCI World hedged into GBP, 30% Barclays Capital US High Yield 2pct Issuer Cap hedged into to GBP, 30% Barclays Global Credit hedged into GBP. Prior to 01/03/11 the benchmark was (10%) JPMorgan GBI–EM Global Index in GBP, (45%) Merrill Lynch High Yield BB-B Constrained Index hedged to GBP, (10%) FTSE EPRA/NAREIT Developed Index hedged into GBP, (25%) MSCI World Index hedged to GBP, (10%) Merrill Lynch Sterling Broad Market Index in GBP. Property component of benchmark changed from Global Property Research 250 hedged to GBP to FTSE EPRA/NAREIT Developed Index hedged into GBP on 1st April 2010.
Quartile ranking 1 1 1 1 1
Volatility 9.5 8.6 9.1
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JPM Multi-Asset Income Fund
Diversified multi-asset fund actively managed to find the best sources of income globally
Our primary aim is to maximise yield - returns will depend on coupon, dividend income and returns of the underlying assets
Meets investors’ need for higher levels of income when interest rates are low, paying quarterly dividends
The targets and aims provided above are the Investment Manager's and there is no guarantee these will be achieved.
Contacts
Olivia Mayell, Managing Director – Client Portfolio Manager, Global Multi-Asset Group
+44 (0) 20 7742 5467
Hannah Sparrow, Executive Director – Client Portfolio Manager, Global Multi-Asset Group
+44 (0) 20 7742 3413
Rob Worthington, Vice President – Client Portfolio Manager, Global Multi-Asset Group +44 (0) 20 7742 5933 [email protected]
Please note that calls may be recorded and monitored for security and training purposes.
08/10/2012
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J.P. Morgan Asset Management
For Professional Clients only – not for Retail use or distribution.
This is a promotional document and as such the views contained herein are not to be taken as an advice or recommendation to buy or sell any investment or interest thereto. Reliance upon information in this material is at the sole discretion of the reader. Any research in this document has been obtained and may have been acted upon by J.P. Morgan A M f i Th l f h h b i d il bl ddi i l i f iAsset Management for its own purpose. The results of such research are being made available as additional information and do not necessarily reflect the views of J.P.Morgan Asset Management. Any forecasts, figures, opinions, statements of financial market trends or investment techniques and strategies expressed are unless otherwise stated, J.P. Morgan Asset Management’s own at the date of this document. They are considered to be reliable at the time of writing, may not necessarily be all-inclusive and are not guaranteed as to accuracy. They may be subject to change without reference or notification to you.
It should be noted that the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Changes in exchange rates may have an adverse effect on the value, price or income of the product(s) or underlying overseas investments. Both past performance and yield may not be a reliable guide to future performance. There is no guarantee that any forecast made will come to pass. Furthermore, whilst it is the intention to achieve the investment objective of the investment product(s), there can be no assurance that those objectives will be met.
J.P. Morgan Asset Management is the brand name for the asset management business of JPMorgan Chase & Co and its affiliates worldwide. You should note that if you contact J.P. Morgan Asset Management by telephone those lines may be recorded and monitored for legal security and training purposes You should also take note that information and data fromrecorded and monitored for legal, security and training purposes. You should also take note that information and data from communications with you will be collected, stored and processed by J.P. Morgan Asset Management in accordance with the EMEA Privacy Policy which can be accessed through the following website http://www.jpmorgan.com/pages/privacy.
Investment is subject to documentation (Prospectus, Key Investor Information (KIID) and Terms and Conditions), copies of which can be obtained free of charge from JPMorgan Asset Management Marketing Limited. Issued by JPMorgan Asset Management Marketing Limited which is authorised and regulated in the UK by the Financial Services Authority. Registered in England No: 288553. Registered address: 25 Bank St, Canary Wharf, London E14 5JP.