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    1. Enhanced dividends: Investment Trusts' advantage for income seekers

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    Advantage investment trusts: enhanced dividends reward income seekers

    Enhanced dividend policies can potentially enable investment trusts to meet many investors’ needs for short-term income and future growth

    J.P. Morgan Investment Trust Team

    December 2020

    Advantage investment trusts: enhanced dividends reward income seekers

    Where to find income? The question weighs heavy on the minds of investors. A year ago, we’d have been discussing how historically low interest rates had squeezed returns across the board, how low-risk income options were increasingly scarce, and how investors might want to start weighing up the risks of global equities.

    Then came Covid-19. The pandemic triggered a period of volatility that has exposed reliance on many traditional income-providing asset classes and provided a stark reminder of the risks of chasing yield in the hunt for high dividend. It has certainly come to pass that many share dividends have been cut or cancelled. However, in this period of market stress, income seekers may find solace in the enhanced dividends paid by certain investment trusts.

    Enhanced performance

    Investment trusts can pay enhanced dividends by supplementing income from their underlying portfolios of assets, with capital gains realised from selling any of those assets that have appreciated.

    Four of J.P. Morgan’s investment trusts pursue an enhanced dividends policy, offering an attractive combination of a predictable level of income – including income opportunities overseas, stock markets not previously associated with dividends – and cost-effective exposure to growth. These are: J.P. Morgan Asia Growth & Income (stock market ticker: JAGI), J.P. Morgan China Growth & Income (JCGI), J.P. Morgan Global Growth & Income (JPGI) and J.P.Morgan Japan Small Cap Growth & Income plc (JSGI).

    Of course, while past performance is not a reliable indicator of current and future results, and dividend pay-outs can’t be guaranteed, the performance of these trusts may catch the eye of the income seeker.

    The growth and income generalist

    JPMorgan Global Growth & Income (JGGI) aims to deliver capital growth and a predictable income from world stock markets by holding a diversified portfolio of investments in which the portfolio manager has a high degree of conviction. It has traded consistently at a premium for the last three years, even issuing shares in March this year as the pandemic hit the markets – and every month this year, despite the global headwinds. Top holdings currently include tech giants Microsoft, Alphabet and Amazon. At the time of writing, this trust’s shares are priced 3.1% higher than their NAV and an enhanced dividend policy delivers a yield of 3.5%1.

    The top performing trust in Asia Pacific income

    JPMorgan’s Asia Growth & Income (JAGI) aims to provide capital growth, primarily from investing in shares listed in China, Korea, Taiwan and India. It is the top-performing investment trust in the Association of Investment Companies (AIC) Asia Pacific Income sector over the last one, five and 10 years. Its shares are priced 1.1% above its net asset value (NAV) and its enhanced dividend policy has enabled it to offer a dividend yield of 3.5%.2

    The top performing country specialist: Asia ex-Japan

    JPMorgan China Growth & Income (JCGI) is another top performer, and the leading investment trust in the AIC Country Specialist – Asia ex-Japan sector over the last year and five-year periods. This trust aims to provide long-term capital growth through investment in companies listed in Greater China – that is, China, Hong Kong and Taiwan. The shares are currently priced 1.3% higher than their NAV and the trust’s enhanced dividend policy enables a 3.7% yield3.

    Income from next-generation Japan

    While income takes a back seat to growth for J.P.Morgan Japan Small Cap Growth & Income plc (JSGI), the trust has performed well in the AIC Japanese Smaller Companies sector over the last year. JSGI aims to achieve long-term capital growth through investment in small and medium-sized Japanese companies, excluding the largest 200 measured by market capitalisation. Shares are currently priced at 2.9% below NAV; an enhanced dividend policy enables this trust to yield 3.6%4.

    Income today, growth tomorrow

    Enhanced dividend policies can potentially enable investment trusts to meet many investors’ needs for short-term income while balancing this with the potential for future growth. However, it is important to understand that enhanced dividends are not a panacea. There is a risk that the price of higher income today might be lower total returns tomorrow. This is why investment trusts’ independent boards of directors regularly review whether enhanced dividend policies remain in the best interests of all shareholders.

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

    Source: All share prices and performance figures sourced from Morningstar via the Association of Investment Companies as at Nov 12, 2020.

    1 Quarterly rolling performance (%) as at 30/09/2020: 2015/16:28.51%, 2016/17: 28.14%, 2017/18:11.38%, 2018/19: 7.88%, 2019/20: 7.04%. Benchmark: MSCI AC World Index
    2 Quarterly rolling performance (%) as at 30/09/2020: 2015/16: 38.71%, 2016/17:29.75%, 2017/18:2.95%, 2018/19:10.91%, 2019/20:22.33%. Benchmark: MSCI AC Asia Ex Japan Index
    3 Quarterly rolling performance (%) as at 30/09/2020: 2015/16:37.99%, 2016/17: 36.36%, 2017/18:-4.98%, 2018/19:19.35%, 2019/20:82.65%. Benchmark: MSCI China (Net Dividends Reinvested)
    4 Quarterly rolling performance (%) as at 30/09/2020: 2015/16: 36.37%, 2016/17:18.79%, 2017/18:21.76%, 2018/19: -4.74%, 2019/20: 32.06%. Benchmark: S&P Japan Small Cap NR

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    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.

     

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