Positive Uncertainty - J.P. Morgan Asset Management

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.

JPMorgan Claverhouse Investment Trust plc

Important information

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