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An improving macroeconomic backdrop combined with several long-term secular growth themes create a positive near-term and long-term outlook for many real assets.
Real assets—infrastructure, transportation and real estate—can provide stable income, offer potential to keep pace with inflation and can diversify portfolios of traditional assets.
JPMorgan Global Core Real Assets (JARA) invests in the higher-quality end of the real asset spectrum, seeking assets with the potential to the generate stable and predictable income that makes up most of the portfolio’s return.
Some sectors tend to have more assets with this type of income profile, either because the income is from a regulated business or based on long-term contracts, or because the sectors have strong and stable growth prospects. For example, within infrastructure, utilities are typically highly regulated businesses that also enjoy stable demand through market cycles, thereby offering relatively stable returns.
Renewable energy infrastructure will continue to benefit from the investment in long-term secular growth trends of decarbonisation and electrification, which should support strong and stable growth for these assets. The energy transition theme also affects transportation assets. Energy logistics is a growing business needed to support the expanding global market for liquified natural gas (LNG), which requires specific infrastructure for shipping and storage.
Many countries are also focused on energy security, in light of both heightened geopolitical tensions and supply chain disruptions, driving further demand for investment in transportation infrastructure related to both traditional and renewable energy.
While long-term secular trends bolster the outlook for many real assets, particularly across infrastructure and transportation, the macroeconomic backdrop may also be starting to turn positive, which is especially good news for the real estate sector.
Private real estate valuations have been adjusting to in the sharp increase in interest rates since 2022. With markets now anticipating that the Federal Reserve (Fed) and other central banks will soon begin cutting interest rates and that the US economy is headed for a soft landing, borrowing rates and underwriting rates of return (IRR) appear to have peaked in Q4 2023—and real estate valuations may be bottoming out.
JARA has also been affected by the weakness in the real estate market but the portfolio managers and the Board have taken a number of steps to bolster the portfolio.
JARA is a diversified real asset portfolio, investing in roughly 1,400 high-quality mature core assets, which provide more stable income. While mostly invested in private assets across infrastructure, transportation and real estate, about 17% of the portfolio is in listed assets. The high number of individual assets helps diversify idiosyncratic and counter party risk and JARA’s global exposure can be particularly helpful for UK investors seeking to diversify geographic risk: only 2%-3% is in the UK.
In early 2023, the portfolio managers rebalanced the allocation towards infrastructure and transportation as the portfolio had become overexposed to private real estate in the US and Asia. Within real estate, the allocation to the office sector is less than a third of the private real estate exposure. Our outlook for the Asia-Pacific region is relatively stronger with stable growth and fewer interest rate-driven headwinds. We see opportunities in residential real estate, especially in Japan, where we find multifamily residential attractive due to stable demand and supply, delayed in family formation and net migration into the core market.
The portfolio managers also added a US core real estate mezzanine debt sleeve in May 2022 to help JARA continue to provide attractive income yield, given that mezzanine spreads typically trade at a premium to commercial mortgage loans and government bonds. With interest rates now expected to decline, we think mezzanine debt will continue to provide stable income due to a supply imbalance and the flexibility to adjust from floating to fixed rates.
JARA’s net asset value (NAV) has shown resilience. Looking at historical transaction data, exit valuations for private market transactions have been largely in line with appraisal values for JARA’s investments at the time, indicating a rigorous valuation process. Indeed, JARA’s NAV has been remarkably stable vs. property UK investment trusts.
However, over the last 12 months, continued repricing in the real estate market has weighed on JARA’s NAV, despite strong performance in infrastructure and transportation. Acknowledging these headwinds, the Board has taken four specific actions to support JARA’s NAV, including:
JARA’s focus on high-quality real assets and stable, predictable income—combined with active management that can rebalance the portfolio in times of market stress—makes JARA a solid foundation for a real asset allocation.
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 www.jpmorgan.co.uk/JARA. 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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