Real estate exposure weighs down JPMorgan Global Core Real Assets

JPMorgan Global Core Real Assets (JARA) announced its annual results for the year ended 29th February 2024. The company saw a NAV total return of -4.4%, whilst shareholder total return was -20.9% due to a widening of the share price discount to NAV. Underlying asset performance in local currency was +0.3%. Real Estate was the main detractor to the company’s performance during the period as already elevated interest rates moved higher over the year, adding further pressure to rate sensitive assets. The share price discount to NAV widened during the period, to 30.5%, from 14.9%, as poor equity market sentiment and challenging macroeconomic conditions continued to weigh on sentiment. Total dividends of 4.20 pence per share were declared during the period, comprising four quarterly dividends of 1.05 pence per share, providing a 5% uplift on the prior year.

Discussing the performance, chairman John Scott noted:

“The company’s return to shareholders of -20.9% for the past year can only be seen as deeply disappointing and is in the main driven by the considerable disconnect that developed between the underlying NAV and the company’s share price. JARA is far from alone in the world of closed end funds in experiencing this phenomenon, and your Board has been active in addressing this issue, not least in buying back shares. This programme would appear to have been effective in delivering the substantial discount reductions seen since the end of our financial year.”

Regarding the outlook, he continued:

“During the past year, your board has given very careful thought to the future of JARA and whether it has a role to play in offering something not easily available elsewhere in the wide spectrum of opportunities available to investors. When our discount was above 35%, serious consideration was given to recognising that JARA’s offering was not finding favour with investors and that the best outcome for shareholders might be a dissolution of the company, followed by liquidation and a return of capital.

Following detailed discussions with the investment manager and consultations with shareholders – as well as a recent re-rating of our shares in the market – we have come to the view that JARA’s investment proposition is something which does meet the needs of a particular group of investors. Many of these recognise that, given the torrid investment conditions which have prevailed since JARA’s launch in 2019, this is a product that, suitably tweaked, should have an attractive future in the parish of those looking for exposure to an international portfolio of real assets. It is also your board’s view that the major detractor to investment return, as reflected in the share price and adjusted for dividend distributions, is what has historically been a cyclical one, namely the discount to NAV at which our shares have been trading. This is a malaise which currently blights almost the whole closed ended fund sector, affecting large and small funds alike, with scant attention paid to underlying investment performance or the skill of the investment manager.

To summarise what has been set out above in some detail, we intend to increase the frequency of future continuation votes to a three year cycle, and to reduce our exposure to real estate with a concomitant increase in investments in infrastructure and transport, while continuing to use our capacity to buy back shares when market conditions are judged appropriate. Higher yields on our underlying investments should in due course lead to increased dividends from JARA. Your board has great confidence in the abilities of, and the resources available to, the team at JPMorgan charged with the management of the company. Accordingly, the board of JARA is unanimous in recommending to shareholders that they support the resolutions before them.”

JARA : Real estate exposure weighs down JPMorgan Global Core Real Assets