Why invest in the FTSE? - J.P. Morgan Asset Management

Why invest in the FTSE?

Contributor William Meadon

As an all-cap investment trust benchmarked to the FTSE All-Share Index, we decided to overweight the JPMorgan Claverhouse Investment Trust plc to large-cap stocks in 2016 in the aftermath of the Brexit vote.

With Brexit came a very sharp fall in sterling: with large-cap companies deriving on average 70% (J.P. Morgan Asset Management Q1 2019) of their earnings from overseas, these businesses were well-placed to enjoy the benefits of sterling’s weakness when bringing their profits back into the UK.

We take a high-conviction approach when selecting the trust’s portfolio of 60 to 80 stocks, and being overweight to large-caps means we invest heavily in the FTSE 100, which comprises the 100 companies listed on the London Stock Exchange with the highest market capitalisation.

Market illumination

There is a common misconception that investing in the FTSE 100 and FTSE All Share is equivalent to investing in the UK economy itself. But this is categorically not the case.

In reality, the UK stock market is the most global of developed market indexes, providing investors with huge international exposure. For example, the FTSE All Share’s revenue split as at January 31 this year showed that the UK only accounted for 28% of its total coverage. Emerging Markets made up 23%, closely followed by North America with 22%, while Europe ex-UK accounting for 14% of its income.

It may well be an accident of history that huge international conglomerates such as GlaxoSmithKline and Shell are UK listed, but it does mean that investors can essentially buy appealing global equities at knockdown prices.

In addition to offering international exposure, the UK stock market offers investors a great deal of diversity. It includes larger, well-established companies such as utility providers, oil and gas companies, pharmaceuticals and financial institutions that have mature profit streams, and growth stocks, which are typically younger firms that will reinvest profits in growing the business.

At Claverhouse, we actively seek out income-generating UK companies. Our dedicated UK equity specialist team invests in a focused portfolio, with an emphasis on quality UK stocks that can provide consistent and growing dividends.

And the UK stock market is particularly dividend friendly. In fact, it’s arguably one of the best in the world, with a dividend pay-out of 62% and yield of 5.2%1 as of January 24, rivalled only by commodity-driven Australia and sanctions-threatened Russia. Of course past performance is not a reliable indicator of current and future performance.

Staying power

One thing that investors should be aware of is the detrimental effect dropping out of the market, even for a short space of time, can have on stock market investments.

J.P. Morgan Asset Management research shows that the value of £10,000 invested in the FTSE All Share from 1999 to 2018 would provide an annualised total return of 5.1% to those who remained fully invested. However, those that missed the ten best market days only received a 1.7% return, while those that missed the best 50 would actually have seen the value of their investment drop by 5.1%.

Clearly it can pay to remain invested in the UK stock market, and with valuations currently at attractive levels due to continuing Brexit uncertainty; we feel there is no time like the present to participate.

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.
Quarterly rolling 12 months - as of 30/09/2019
  2014/2015 2015/2016 2016/2017 2017/2018 2018/2019
Share price 1.88 7.87 20.25 16.09 -3.45
NAV 2.22 12.39 16.44 7.35 -0.43
Benchmark -2.30 16.81 11.90 5.83 2.64

Source: J.P. Morgan Asset Management/Morningstar. Net asset value performance data has been calculated on a NAV to NAV basis, including ongoing charges and any applicable fees, with any income reinvested, in GBP.

Past performance is not a guide to current and future performance.

NAV is the cum income NAV with debt at fair value, diluted for treasury and/or subscription shares if applicable, with any income reinvested. Share price performance figures are calculated on a mid market basis in GBP with income reinvested on the ex-dividend date. The performance of the company's portfolio, or NAV performance, is not the same as share price performance and shareholders may not realise returns which are the same as NAV performance. Indices do not include fees or operating expenses and you cannot invest in them.

1 Bloomberg, MSCI/FTSE* indices at 24/01/19, Payout=P/E*DY

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. 0903c02a82598057