Stock markets are less expensive than they were a month ago, making this a good time to launch a new investment trust, says Katy Thorneycroft of JP Morgan Asset Management.
Thorneycroft, a portfolio manager of the forthcoming JPMorgan Multi-Asset Trust (MATE), explains how its diverse portfolio will be designed to generate growing dividends, starting with a yield of 4%, while inflicting less volatility on investors than conventional equity income funds.
In this video interview, Thorneycroft defends the record of multi-asset funds, which have become popular as defensive ‘one-stop shops’ offering capital and income growth from a wide-range of investments in equities, shares, bonds and other types of assets.
Thorneycroft also insists she and colleague Gareth Witcomb are up to the task of running the fund following the unexpected departure of co-fund manager Talib Sheikh.
When challenged on the recent turbulence in stock markets, she argues the global economy is fundamentally in good shape and will be more resilient in the face of rising interest rates than many investors expect.
MATE has so far raised £81 million from investors rolling over from JPMorgan Income & Capital (JPI) investment trust. It is looking to push this to £150 million from new investors with a share subscription offer to intermediaries and private investors and a separate share placing with institutional investors. The respective deadlines for these are next Monday and Tuesday. More information is on the JP Morgan website.
Can't watch now? Read the transcript
Gavin Lumsden: Stock market volatility is back with a vengeance so JP Morgan Asset Management’s decision of JPMorgan to launch a new multi-asset investment trust is either a very timely or bold move. With me to discuss which of these options it is is fund manager Katy Thorneycroft. Katy thanks very much for joining me. Now amusingly the share price ticker of JP Morgan Multi Asset Trust will be M.A.T.E. – or Mate! So I have to ask you: is MATE getting a friendly reaction from investors when you go out and tell them about the new fund?
Katy Thorneycroft: It’s definitely getting a friendly reaction. So far the board of Income & Capital have been delighted by the initial reaction …
GL: This is the investment trust that’s coming to the end of its life and you want shareholders in that trust to roll over into the new one?
KT: Yep. And hopefully get some new shareholders as well. So far initial reaction has been good, we’ve got two weeks to go [NB this interview was recorded over a week ago, the offer closing date is 26 February]. We think it’s going to be a successful IPO [initial public offer].
GL: What is the proposition? What are you offering investors and the shareholders in that trust?
KT: So we’re offering a multi-asset trust, well diversified across asset classes but with flexibility about what we can do there.
GL: So investing in shares, bonds, debt …?
KT: High yield bonds, emerging market debt – investment grade, equities. Other asset classes such as infrastructure are going to be on the table as well. And importantly we are looking for capital growth and income. So we want a balanced approach to the returns we are going to generate.
GL: How much growth, how much income are you looking to generate?
KT: Over the long run our expectations are a 6% return with a 4% yield but with volatility about two thirds of that of equity markets.
GL: Ok so it’s very well diversified. How are you taking advantage of the investment trust structure? What is MATE going to do that comparable JP Morgan multi-asset funds aren’t doing or can’t do?
KT: There’s a few advantages of having a closed-end structure. I think one is we can invest in less liquid investments, so that’s a great idea. Smoothing the dividend is another key advantage.
GL: You’re aiming to pay a 4% dividend initially.
KT: That’s correct, we want that to be progressive though. We would recognise that shareholders want something that’s growing through time so our hope is that we will be able to grow that through time. The other advantage of the closed-end structure is that we can gear. So we can do that up to 20%. Initially we’re not going to take out a loan facility, we’ll probably use futures initially but that’s another advantage of the structure.
GL: Ok some of our viewers might know you as the manager of the JP Morgan Elect. You run the managed growth portfolio of that investment trust. In that role you’re picking funds and investment trusts to invest in. Is that kind of thing you’re going to be doing at Multi-Asset Trust?
KT: So with the Multi-Asset Trust we’re going to be investing in a mixture of direct equities that we are going to be targeting with a higher yield in the portfolio. And also some funds as well, so we are going to use the JP Morgan platform. I don’t know if you are familiar with it but we have 500-odd strategies from which to choose. So in order to build a well-diversified portfolio we’re going to be using a mixture of direct equities and some of the strategies on our platform, and also any third party investment companies if they are of interest and have them in the portfolio.
GL: Ok so there is an element of a fund of funds approach, investing in other funds. So will there be any double charging? The annual management charge on the trust is 0.65% a year but when you are investing in other funds will there be extra fees on top?
KT: There will be no double charging of management fees. If there are any performance fees embedded in any of the underlying strategies in which we are investing then they will be coming through to the portfolio but no double-charging of management fees.
GL: Is the team stable? There were supposed to be three managers on the Multi-Asset Trust: you, your colleague Gareth Witcomb and Talib Sheikh. Unfortunately, Sheikh has announced he is leaving the group after 19 years, which isn’t great timing, is it? Is there enough of you to do the job?
KT: We’re sorry to see him go. A valued colleague, of course disappointing when anyone leaves. It’s business as usual for the Multi-Asset Trust though. Management remains the same in terms of me and Gareth Witcomb being the lead managers and that’s with the support of all the Multi-Asset team.
GL: Now does multi-asset actually work? Looking through the prospectus for the investment trust, you’ve got some performance figures there for comparable JPMorgan open-ended multi-asset funds. Over five years it appears that some of those funds, you know, don’t do as well as their benchmark, actually have more volatility than the stock market index they’re being compared against.
KT: Yes, I think the one you’re thinking in particular there is the multi-income strategy. So quite important to know that you have lots of different types of multi-asset strategies. When we look out our Multi-Asset Income approaches, we’re really focusing on that income to generate alpha over and above a stock market benchmark. We’re focusing on getting the yield right and getting that in a very risk-adjusted way. So that’s the income strategy. But I think my answer would be, overall of course we believe that multi-asset investing works, our clients believe so too when you look at how our assets have grown through time.
GL: Right, looking at the proposed asset allocation, it’s quite weighted to equities and shares. About 59% in what you call developed markets and 8% I think in emerging markets plus you’re investing in infrastructure as well. So has the recent market sell-off – it’s been a tough February, we’ve seen a lot of volatility – have you adjusted the mix in light of what we’ve experienced?
KT: It’s an interesting question, it’s definitely been volatile, it’s been an exciting start to the year. We have not adjusted the mix in terms of what we’re expecting. We want to ride through this volatility. If we look out to the rest of 2018, we’re very comfortable that the fundamental economic backdrop remains favourable. So we can see regions across the world continuing to grow at trend, above trend, which obviously feeds through to earnings. I think in terms of this market volatility we’ve definitely seen investors underestimate what we believe is the resilience of the economy to rising rates and also probably over-estimate the reaction of the central banks to rising inflation. So our view is that this is relatively short term – I mean it may not bounce back immediately but we’re willing to look through that and we remain positioned towards being overweight equities within ..
GL: So a correction, not anything more serious?
GL: The economic prospects that you allude to do sound – they are positive. But isn’t it the fact that stock markets are over valued and even if you are diversified, after nine years of money printing and quantitative easing, and all that sort of thing, there are people who say that all assets are inflated. So does multi-asset, being diversified, does that protect you?
KT: We think it does, we think it does. When you think about the valuations that we’ve seen across equity markets, yes they are at higher levels than they have been, depending on which metrics you’re looking at, if you were to look at some of the free cash flow yield measures, they look more attractive. I would note that valuations look somewhat more attractive than they did in the middle of January! We don’t think valuations are a concern because we can see that that positive economic backdrop is driving earnings. So for our perspective the earnings growth is very well supported in this context.
GL: Well Katy, let’s hope you’re right. Thanks very much.
KT: Thank you.