North American Institutional (NAI) video – International Focus

Hi.  I’m Shane Duffy, Portfolio Manager on the JP Morgan International Focus strategy.  Along with my co-Portfolio Manager, Tom Murray, I have been managing the strategy since its inception in November 2011.

Simply put, our objective with International Focus is to deliver a high conviction portfolio of our best ideas outside the US. We believe that by investing in a portfolio of 40 to 50 of our highest conviction stocks leveraging the full breadth of our research resources, we can deliver strong, consistent, excess returns.    

Our investment approach is built around 3 key pillars:

·         The first is a culture of Collaboration – we achieve our best results when we harness the collective insights of our analysts around the globe and when we have a strong partnership between analysts and portfolio managers

·         Second is our commitment to Global Research  - we fundamentally believe that international markets are inefficient and there are rewards for diligent bottom up research identifying companies whose fundamentals are mis-priced.

·         Finally, it’s our keen focus on Risk management – our aim is to build a portfolio of select companies we believe can create significant shareholder value but where risks are carefully managed

In practice, building conviction portfolios requires a disciplined approach to bottom up research. 

The bedrock of our research capability lies in our regional teams. At JP Morgan Asset Management we are fortunate to have over 80 fundamental equity analysts across developed and emerging markets following the same investment research approach.  Many thousands of hours each year are spent meeting with companies, suppliers, customers, industry experts and so on to help identify key trends, inform our forecasting and assess risks.

This research framework employed across the firm is an incredibly powerful common language that enables us to compare ideas from all over the world in a consistent way.

Leveraging this regional research, we also have a dedicated team of global sector specialists – global analysts with deep sector expertise - working in close partnership with their regional counterparts and with me and Tom.  With well over 2000 investable stocks outside the US, having a dedicated global research resource enables us to effectively scour that universe for the very best opportunities. Our Global Sector Specialists think and behave like an extension of the Portfolio Management team, aligned around a common approach and philosophy with their role focused on two core objectives: 1. sector strategy – what is happening at a big picture level in their industries? – and 2. stock selection – what are their highest conviction ideas?

This combination of local breadth and global sector depth enables us not only to build high levels of conviction but also to draw on a range of uncorrelated ideas. This is key to our portfolio construction. 

It’s an investment process we have employed at JPMorgan Asset Management for over 20 years now and we believe it is key to the results we have been able to deliver.

Bilquis & James

James:

Hello, my name is James Andrew, and I’m a Global Sector Specialist, covering global internet, media and consumer brands.

Bilquis:

Hello, my name is Bilquis Ahmed and I am one of the 80+ analysts within the Global research team with a focus on European retail. 

James and I have been collaborating for well over a decade now and have witnessed several structural shifts within the consumer space during that time.  The most striking of course has been digitisation – in all its forms! With the channel shift to e-commerce being the most obvious, but other notable shifts have been the increased attention to environmental and social concerns as well as the concentration of market share in strong brands or franchises. 

James:

Not only have we seen the more agile brand businesses embrace new tools to strengthen consumer engagement, we’ve also seen the internet platforms continue to innovate. These companies have leveraged their capabilities to expand their addressable markets which has led us in many cases to lift our long term expected return outlook.

Our global and regional collaboration works by combining the depth and breadth of our research efforts.  With local insights, Bilquis is able to get into the details of product offerings and operational execution…

Bilquis:

…whereas James can apply the insight from covering more mature global companies or the emerging trends from the tech space to properly identify long term winners. This helps to keep us asking the challenging questions of company management teams so we can evaluate the mid term value creation potential.

James:

From the US to Europe and Asia, this has helped us be early in identifying the long term potential from revenue streams like advertising and payments. We have seen a number of internet platforms that have built scale in these areas beyond their primary businesses. That’s a very powerful path to long term value creation.

Alexei Kapkin

Hi I’m Alexei Kapkin, global sector specialist looking at the global banks sector.

In contrast to the consumer sector with big global brands and platforms, the banking sector is largely a local business. Understanding market structures, regional regulation, and the competitive environment are therefore fundamental to making informed investment decisions. Having the local expertise of our regional teams is tremendously valuable in tackling these issues and helping us focus on the best business models globally.  

Building on the regular discussions with my regional colleagues, my edge comes from applying a global framework to look for the best ideas within the global banking sector.  My aim is to balance cyclical and structural trends.  

On the structural side, identifying the most attractive market structures creates an opportunity to own genuine long term winners. 

On the cyclical side, regional macro factors have been a significant driver of relative performance through various economic cycles. Here a global perspective is very valuable as we can learn from outcomes across the world.   Having worked as a banks analyst for 20 years, I have lived through a number of cycles, including global and regional financial crises. Being careful to avoid the downsides of that volatility through the cycle is key for long term performance.

Tom Murray

You have heard from some of our analysts, and learned more about the global research platform, but let’s explore how we harness that for International Focus.

The culture of collaboration at JPMorgan Asset Management is key to everything we do. We have worked hard to create a culture that is free of silos, and brings collaboration to the fore.  This is evident across our investment process, aligning the very best of the regional research teams, with the insights and unique global perspective of our global sector specialists.

Within our team too, we ask the sector specialists to continue that collaboration, to work together across sectors to explore structural themes that transcend traditional industry boundaries. All of this helps inform our sector strategy – our big picture view of the key themes playing out in the world.

But while structural shifts are important, it is ultimately stock selection and risk management that drives portfolio returns.

We are fortunate that the research platform serves up a number of high conviction ideas - our job as Portfolio Managers is to leverage that to build a concentrated, style agnostic, core portfolio, with significant differentiation versus the index.

The essence of the Portfolio Manager’s job is to subject every potential new idea to the highest standard of due diligence and to be the gatekeeper of risk at the portfolio level. We feel very confident in the bottom up research across the firm but a key part of our risk management is testing each and every investment thesis. What are the range of outcomes? Where could we be wrong? What is our confidence in our assumptions? Upside needs to be balanced against risk.

As portfolio managers we are ultimately responsible for every stock selected, and we carefully consider the correlations, volatility and risk characteristics of competing ideas.  The firm’s investment in our technology platform, Spectrum, has been critical in giving portfolio managers risk management tools at their fingertips. Spectrum gives us a central source for stock level insights and research, portfolio analytics, and risk metrics across all of the portfolios we manage as well as being our order implementation platform. This creates tremendous efficiency for the portfolio management team.

We believe that this alignment of a first class global research effort, a culture of collaboration, and a holistic understanding of risk, is what really differentiates JPMorgan Asset Management and the International Focus strategy.

Shane and I have been fortunate to work together in this investment process for over two decades. We have seen it deliver alpha through some of the most turbulent market environments you could expect to see.

We continue to believe that the strength of our global research platform, the consistency of our investment approach, and the stability and experience of our team gives us all the ingredients to continue to deliver in what is sure to be an unpredictable but exciting future.