Going global: Widening the horizons for income investors - J.P. Morgan Asset Management
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Going global: Widening the horizons for income investors

Contributor J.P. Morgan Investment Trust Team

 

For income investors, the new financial year provides a chance to seek opportunities outside the UK. Three well-established trusts suggest where these fresh pastures may be found.

UK equities had a stellar 2016, with the blue-chip FTSE 100 index ending the year on a record high 1, and there may well be more to come in the current year. However, as the ISA season approaches, investors seeking income may be tempted to look beyond Britain’s shores in search of a diversified and sustainable dividend stream. Here we look at three trusts, each with its own distinctive style and focus.

Where next after a bumper year?

It has become commonplace to say that, in the wake of the financial crisis, the investment landscape is one in which finding good returns has become generally harder work. That said, 2016 was a bumper year in the UK stock market – Investors Chronicle worked out that total returns, capital growth plus dividends, averaged ten per cent during the year, with six per cent coming from growth with another four per cent once income is factored in.2

The annual average, adjusted for inflation, between 1900 and 2015 was 5.4 per cent, added the magazine.

A boom year such as this may repeat itself in the following 12 months or it may not. Regardless, what is certain is that with a new tax year approaching in April comes a new ISA season, the chance to open a fresh Individual Savings Account offering tax-free investment returns.

For those who believe it may well be, there are three investment trusts that offer range and expertise for investors looking for both diversification and sustainability.

Let’s look first at the JPMorgan Global Emerging Markets Income Trust. Ten or 20 years ago, to seek income from emerging-market investment would have seemed a little eccentric. The focus was on growth, which is unsurprising as dividends were barely on the agenda.

All that has changed, with an increasing emphasis on dividends and a generally-growing appreciation of shareholder expectations in this area.3

Stock selection

The emerging-market income investment has become an attractive method of diversification. This is especially the case for investors who are currently exposed in large part to traditional equity markets: in the UK, for example, a notable proportion of dividend generation is concentrated in a relatively-small number of the top-100 companies.3

The trust searches for top-quality investment ideas across China, South Africa, Brazil, Taiwan, and beyond.

Wide-ranging in a slightly different way is the JPMorgan European Investment Trust - Income Shares. Its expert teams analyse thousands of companies across continental Europe every year in search of businesses thought capable of paying sustainable dividends.4

Finally, JPMorgan Global Growth & Income constructs portfolios of between 50-90 stocks from across the world. The manager is focused on building a high conviction portfolio which is designed to seek out strong long-term returns. The company paid quarterly dividends which were equal to at least 4% of the NAV at the time of the announcement. This payment was made from a combination of income and capital.5

As the name implies, it is not a “pure” income fund, seeking also market-beating capital growth. But as a secondary objective, the JPMorgan Global Emerging Markets Income Trust is looking for the potential for long-term capital growth, as is JPMorgan European investment Trust - Income Shares, so it is in good company.

Please note investments in emerging markets may involve a higher element of risk due to political and economic instability and underdeveloped markets and systems. Shares may also be traded less frequently than those on established markets. This means that there may be difficulty in both buying and selling shares and individual share prices may be subject to short-term price fluctuations. Where permitted, a trust may invest in other investment trusts that utilise gearing (borrowing) which will exaggerate market movements both up and down. These trusts may use derivatives for investment purposes or for efficient portfolio management. External factors may cause an entire asset class to decline in value. Prices and values of all shares or all bonds could decline at the same time. These trusts may also invest in smaller companies which may increase its risk profile.

Rethinking portfolios

The new ISA season provides an opportunity for some fresh thinking. For British income investors, it offers also the chance to spread their wings and head further afield in search of better returns.

Related products:

JPMorgan Global Emerging Markets Income Trust plc   
JPMorgan European investment Trust - Income Shares  
JPMorgan Global Growth & Income plc  

Sources:

1 Source: The Daily Telegraph

2 Source: Investors Chronicle; December 16 2016

3 JPMorgan Global Emerging Markets Income Trust plc   

4 JPMorgan European investment Trust - Income Shares  

5 JPMorgan Global Growth & Income plc  


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