Investment Trust Insights

Appreciating the stability of critical assets

Investments in infrastructure and transportation have recently performed well vs. real estate and now make up almost half of JPMorgan Global Core Real Assets Limited (JARA) portfolio. Both types of assets offer access to business models with relatively stable and predictable income that makes them attractive now and over the long term.

Business models that provide stability

The infrastructure and transportation investments in JARA’s portfolio provide services that are essential to daily life or the economy. Infrastructure assets include traditional suppliers of water or natural gas and increasingly alternative energy sources, such as wind farms or solar parks.

We find these assets attractive because their business models offer relatively stable and predictable cashflows. The businesses are either regulated monopolies, such as heat, water, gas and electricity providers, or have long-term contracts that often include volume minimums, which is often the case with renewables or storage.

In transportation, we invest across all types of assets, from specialised ships that carry liquified natural gas (LNG) or service offshore windfarms to containerships and rail cars. However, we are focused on a specific business model. We invest in assets that are critical to the core supply chain of a large corporation, owning the assets on the balance sheet of the fund, and then lease them back to the companies.

This structure means that roughly 90% of the return from these assets comes from income. That’s a big difference from many traditional investments in transportation, such as shipping, that seek most of their return from capital gains, with no real focus on income.

Less sensitivity to the macro environment and geopolitical risk

While infrastructure and transportation business models offer an important source of stability through regulated or contracted cashflows, the assets also tend to be less sensitive to interest rates, inflation and the macroeconomic cycle, making them a good fit for a core to core-plus portfolio focused on long-term returns.

Both types of assets tend to be able to pass through inflation so that it does not meaningfully impact revenues. With regards to interest rates, on the transportation side, as interest rates moved higher, we have been able to swap from floating to fixed rate structures and lock in a smooth income profile. This relatively stable relationship with inflation and interest rates has allowed the assets to maintain consistent yields in the high single digits.

The long-term drivers of the assets also help insulate them from big swings in the macroeconomic cycle. For example, given that 90% of everything consumed in the world travels on water at some point1, shipping assets are more correlated with the long-term trend of global consumption growth rather than the current macroeconomic cycle. The other key driver of shipping assets is supply, which is currently constrained and has limited ability to grow meaningfully anytime soon: the global order book is currently 10% of the fleet vs. 54% in 20082, the number of shipyards in the world has been cut in half and labour costs have significantly increased.

In addition to being less sensitive to near-term macroeconomic cycles, transportation and infrastructure assets may also have less downside exposure to some geopolitical or political risks. Staying with the example of shipping, drought in the Panama Canal and pirate attacks in the Red Sea are currently disrupting global shipping routes. While ships are forced to go around the Cape of Good Hope, shipping owners still get paid for the extra days added to every journey.

On the infrastructure side, US-based assets are much more likely to be impacted by individual state and municipal decisions rather than national headlines. A key part of our research and due diligence process is having a deep understanding of these local dynamics that can affect each infrastructure investment in the portfolio.

Positioned to benefit from the energy transition and electrification

The long-term nature of infrastructure and transportation assets focuses JARA’s portfolio managers on global investment themes that may play out over decades, such as the energy transition.

A massive amount of capital is needed to replace and modernize existing global infrastructure with more energy efficient standards, in addition to building capacity related to renewable energy, from wind farms and solar parks to electric vehicle charging stations. We also expect to see some indirect opportunities related to the enormous power supply that the significant growth in data centers will require.

Across transportation we are invested in four key themes:

  • Alternative marine fuels: Regulatory efforts to decarbonise the shipping industry are increasing the share of new-build ship orders that use alternative fuels.
  • Rail environmental, social and governance (ESG) benefits: Moving freight by rail vs. truck reduces greenhouse gas emissions up to 75%3, positioning the rail industry well for the future.
  • Offshore wind growth: We expect favourable government policies, especially in Europe, to drive growth in the sector to over 200 GW by 2030 vs. roughly 75 GW in 20233, which supports growth in specialised service vessels.
  • LNG trade growth: LNG is a key fuel for the energy transition because it reduces emissions approximately 20% and 50% vs. oil and coal, respectively3.

JARA’s portfolio managers remain committed to investing in long-term core and core-plus real assets, with a focus on stable income generation. Infrastructure and transportation assets meet these key criteria, and the strong fundamental outlook ensures they will remain a key part of the portfolio.

1 OECD, Ocean Shipping and shipbuilding
2 Clarkson's, J.P. Morgan Asset Management, as of December 31, 2023
3 DNV,DB AG, Clarksons, J.P. Morgan Asset Management, as of Q4 2023

Summary Risk Indicator:

The risk indicator assumes you keep the product for 5 year(s).­ The risk of the product may be significantly higher if held for less than the recommended holding period.

Investment Objective 

The Company will seek to provide Shareholders with stable income and capital appreciation from exposure to a globally diversified portfolio of Core Real Assets. The Company will pursue its investment objective through diversified investment in private funds or managed accounts managed or advised by entities within J.P. Morgan Asset Management (together referred to as “JPMAM”), the asset management business of JPMorgan Chase & Co. These JPMAM Products will comprise “Private Funds”, being private collective investment vehicles, and “Managed Accounts”, which will typically take the form of a custody account.

Risk Profile:

Before investing, please refer to the Prospectus – particularly the Risk Factors, PRIIPs Key Information Document (KID), and all relevant documentation.

The target total return is not indicative of the future performance and does not constitute a profit forecast. The target returns are for illustrative purposes only and are subject to significant limitations. An investor should not expect to achieve actual returns similar to the target returns shown above. Because of the inherent limitations of the target returns, potential investors should not rely on them when making a decision on whether or not to invest in the strategy.

The targeted dividend should not be seen as JARA’s expected or actual dividend yield. Dividend payment is as declared by the Board according to Dividend Policy, subject to regulatory compliance.

Diversification does not guarantee investment returns and does not eliminate the risk of loss.

Your capital may be at risk.

Past performance is not a reliable indicator of current and future results. 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.

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 may be subject to change without reference or notification to you. 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 Prospectus and PRIIPs Key Information Document can be obtained in English from JPMorgan Funds Limited or . This communication is issued in the UK 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

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