Going global: Widening the horizons for income investorsContributor 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
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.
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.
1 Source: The Daily Telegraph
2 Source: Investors Chronicle; December 16 2016
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 Asset 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 current and 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.
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