Positive Uncertainty - J.P. Morgan Asset Management
CLOSE

Positive Uncertainty

Contributor William Meadon

How to invest in the UK for the long term

With the current political situation continuing to promote uncertainty for many investors, we look at the investment opportunities beyond Brexit.

On one hand, an initial agreement on the UK’s relationship with Europe would provide more clarity and instill greater confidence in the change of circumstance. On the other, if the UK left without a deal, it could induce a wait-and-see approach from many investors. And another general election would double down on the current uncertainty.

Reasons for optimism

Despite all the doom and gloom, there are plenty of reasons for investors to be optimistic.

For example, Brexit uncertainty has led to once-prized UK equities being shunned over the last few years. As a result, they are now cheaper relative to government bonds (gilts) than they have been since World War I 1.

The knock-on effect of this is that corporate buyers have been seizing the opportunity to bolster their portfolios with relish.

According to J.P.Morgan Asset Management figures 2, merger and acquisition (M&A) activity has been vibrant in the UK; it led Western Europe between June 2016 and October 2018 with £948 billion worth of deals taking place. Germany was second with £321 billion.

J.P.Morgan Asset Management’s Review of Markets over March 2019, released on April 1 this year 3, also shows that the UK economy is being supported by a healthy labour market, with unemployment at 3.9% at the end of March 2019 and wages rising by 3.4% year-on-year for January. Furthermore, UK GDP and the housing market are holding steady, so the economy might not be on the shaky ground that many commentators would have us believe.

Added to this, equities and credit have rallied across the board globally in the first quarter, bringing a much-needed injection of confidence to investors.

The element of trust

With stock valuations so low, investment trusts can act as terrific vehicles for gaining broad exposure to the UK market and beyond, especially for investors looking for a combination of capital and income growth.

One investment trust of note is JPMorgan Claverhouse Investment Trust plc, which has delivered 46 consecutive years of annual dividend increases to its shareholders4. The trust’s portfolio is made up of between 60 and 80 individual equities listed on the FTSE 100. Investors should be aware that dividends are not guaranteed, and that past performance is not a reliable indicator of current and future results.

Portfolio manager, William Meadon, who has been managing the fund for over seven years, explains that following the Brexit vote in June 2016 and the pound plummeting, the fund shifted strategy from being overweight in mid caps to becoming overweight in large-cap stocks.

Being an all-cap fund means Claverhouse Investment Trust can provide flexibility between large and mid-cap stocks. “We can buy those companies whose destinies are not dependent on whether Brexit goes well or goes badly,” says William, who adds that this acts as a sort of hedge and insurance within the portfolio.

He points out that it’s very important for investors to remember that they’re investing in companies with an international footprint when they invest in the FTSE 100.

The beauty of investment trusts is that when income is scarce or negative in the market generally, they can draw upon their revenue reserves – reserves which have been tucked away during good times – and pay those out in more difficult times.

“And that gives a greater consistency of revenue and dividend streams to investors,” says William.

Related products

JPMorgan Claverhouse Investment Trust plc
Investment Objective

The Company aims to provide a combination of capital and income growth from a portfolio consisting mostly of companies listed on the London Stock Exchange. The Company’s portfolio consists typically between 60 and 80 individual equities in which the Manager has high conviction. The Company has the ability to use borrowing to gear the portfolio within the range of 5% net cash to 20% geared in normal market conditions.

Risk profile
  • Where permitted, a Company may invest in other investment funds that utilise gearing (borrowing) which will exaggerate market movements both up and down.
  • This Company 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, or fluctuate in response to the performance of individual companies and general market conditions.
  • This Company may utilise gearing (borrowing) which will exaggerate market movements both up and down.
  • This Company may also invest in smaller companies which may increase its risk profile.
  • The share price may trade at a discount to the Net Asset Value of the Company.
  • The single market in which the Company primarily invests, in this case the UK, may be subject to particular political and economic risks and, as a result, the Company may be more volatile than more broadly diversified companies.
  • Where permitted, a Company may invest in other investment funds that utilise gearing (borrowing) which will exaggerate market movements both up and down.

1 Global Financial Data, Datastream, Citi Research. Data as at 19 February 2019. UK equities in comparison with 10 year gilts.
2 J.P. Morgan Asset Management, Bloomberg. Data as at 2 November 2018. Activity from 24 June 2016 to 31 October 2018.
3 J.P. Morgan Asset Management, Market Insights, March 2019.
4 J.P.Morgan Asset Management, as at 31 December 2017.

SIGN UP TO RECEIVE INSIGHTS BY EMAIL
JPMorgan Claverhouse Investment Trust plc

Important information

This is a marketing communication and as such the views contained herein do not form part of an offer, nor are they to be taken as advice or a 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 products or underlying overseas investments. Past performance and yield are not reliable indicators of current and future results. 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 products, there can be no assurance that those objectives will be met. J.P. Morgan Asset Management is the brand name for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. To the extent permitted by applicable law, we may record telephone calls and monitor electronic communications to comply with our legal and regulatory obligations and internal policies. Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance with our EMEA Privacy Policy www.jpmorgan.com/emea-privacy-policy. Investment is subject to documentation. The Investor Disclosure Document, Key Features and Terms and Conditions and Key Information Document can be obtained free of charge from JPMorgan Funds Limited or www.jpmam.co.uk/investmenttrust. This communication is issued by JPMorgan Asset Management (UK) Limited, which is authorised and regulated in the UK by the Financial Conduct Authority. Registered in England No: 01161446. Registered address: 25 Bank Street, Canary Wharf, London E14 5JP. 0903c02a82598066