JPMorgan Multi Asset revamp shows early promise

JPMorgan Multi-Asset Growth & Income has published results for the year ended 28 February 2021. The NAV return for the period was 4.1%, a little behind the old performance benchmark of LIBOR +4.5% (which worked out at 4.8% for the period). The board has proposed a number of changes, including a new benchmark, which we wrote about on 23 March 2021. The trust’s performance has picked up since the end of February (NAV up 4.6% between end Feb and 10 May), which would put the trust’s NAV returns ahead of both benchmarks.

The discount widened from 7.9% to 12.6% over the period and that left shareholders with a return for the year of just 0.7%. Again, things are improving. 1.8m shares have been bought back since the period end (to 10 May) and the discount is now 4.9%.

Remarkably, given the backdrop of COVID-related dividend cuts, the company managed to increase its revenue by 2.2% over the year. It has maintained its dividend at 4p per share and this was covered by revenue earnings.

[It is probably too early to draw any definite conclusions about the revamp of the trust, but MATE’s much improved performance since end February is an encouraging sign and the board seems determined to eliminate the discount in time.]

Extract from the manager’s report

“The portfolio’s equity exposure was the largest positive contributor to absolute performance. While our position in physical equities was beneficial overall, our regional positioning through index futures (by which means we agree to trade a specific index at a specific future price and date) in developed markets provided a negative contribution to return chiefly due to the unexpected speed of the rebound in equity markets in April 2020. In contrast, our emerging market equity exposure provided a positive contribution. Fixed income in aggregate detracted from performance while our allocation to infrastructure was beneficial over the year.

Portfolio review

We made significant asset allocation changes through the period as we continued to position the Trust in line with favoured markets and regions. We reduced our equity position significantly in March to the lowest historical levels held, before starting to scale exposure back up through the second quarter as volatility eased and markets started to bounce back from the lows. Going into the market decline with significant equity exposure was clearly detrimental to performance but we were able to regain the losses by the end of the financial year.

While stock selection is undertaken by our in-house International Equity Group, we tilt regional positioning to reflect our latest views, implemented via index futures. As we increased equity risk in the portfolio, we added to the US as we believed the strong fiscal and monetary policy response would provide upside potential in the US and emerging markets where valuations were supportive.

In the Company’s portfolio of fixed income investments, we meaningfully reduced our allocation to high yield bonds in the initial months of the Company’s financial year in response to the pandemic driven economic crisis and significantly increased exposure from May given the backdrop of support from the Fed. While we added investment grade corporate bonds in March against a favourable backdrop, we exited this position in September as we added further to equity markets. Towards the end of 2020, we added exposure to local currency-denominated emerging market debt amid strong manufacturing and export data. We have significantly reduced our exposure to global government bonds to express our views on duration in recent months.

Our bespoke equity portfolio generated returns in excess of the MSCI World High Dividend Yield index. At a sector level, the largest contributors to performance were technology – semi & hardware and utilities. Detractors included pharma/medtech and transportation. At a stock level, Taiwan Semiconductors was the largest contributor. The stock performed very strongly over the period as the company affirmed its leadership in foundries for nanometer-scale chip production. An overweight in Iberdrola, the Spanish electric utility company, also contributed positively. As market volatility intensified in the second quarter of last year due to the Covid-19 pandemic, investors turned towards defensive sectors and in particular towards renewable energy generation companies. Not holding Ventas, a US based healthcare real estate investment trust, was the largest detractor over the period. During the year, the stock was impacted by the pandemic and the risks to the senior housing business that could lead to a decline in occupancy and cash flow pressures on the industry. The stock rebounded strongly in November on the vaccine news and after reporting better quarterly earnings on lower expenses. An overweight position in Coca-Cola also detracted from performance. The stock declined strongly at the beginning of 2021 on account of prolonged social restrictions across its key markets and concerns loomed over a potential tax liability.

Contribution to the Portfolio by Asset Class – Year to 28th February 2021

MATE : JPMorgan Multi Asset revamp shows early promise