The election of Donald Trump as US president has forced many portfolio managers to reassess their positioning as the market adjusts to new conditions.
For the team behind the £819.8m JPM Global Macro Opportunities fund, the election coincided with its quarterly strategy meeting and has prompted a number of changes in the portfolio.
With a 19.91 per cent total return over three years, the five FE Crown-rated fund has outperformed the IA Targeted Absolute Return sector average performance of 6.65 per cent. The fund’s portfolio is based around a number of themes, taking exposure to each through several strategies across asset classes.
JPM Global Macro Opportunities vs sector over 3yrs
Source: FE Analytics
Themes running in the portfolio include Japan beyond Abenomics, Europe gradual growth recovery and US economic strength but the election of Trump in the US prompted one of them to be removed, according to JP Morgan client portfolio manager Nicola Rawlinson
The fund has removed the global ‘low inflation’ theme, which had been running for the past four years and had around a 16 per cent weighting in the portfolio.
The move highlights the managers’ belief that a Trump victory and its implications will lead to disparate growth and inflation paths for the US compared with the rest of the world.
“We’ve been making changes, these were in part catalysed by the unexpected outcome of elections, not only of Trump but the Republican clean sweep [in the Senate] and the implications,” Rawlinson explained.
“We’re moving to a theme of constant inflation. We see inflation picking up in different parts of the world.”
Rawlinson says the fund’s team have reduced duration in the portfolio from over one-year to a short position, the first time the fund has made such a move.
The lack of long fixed income exposure in the portfolio means it has moved towards a greater mix of equity strategies and currency and derivative strategies to provide diversification.
In its equity allocations, the team have reduced long exposure to utilities, healthcare, telecommunications and consumer staples. It has also reduced short positions in industrials, moved from a short to a long position in global financials.
The US growth theme remains in the fund, although there remains a certain amount of uncertainty about what policies president-elect Trump will pursue once he has taken office.
“It’s not all US, we are adding quite a bit of European and Japanese equities where we can find areas to benefit from the upside to US growth,” she added. “Europe is still trading at attractive valuations.”
“What that means overall at a portfolio level is that allocation to equities has gone up, and we can expect higher volatility.”
Indeed, the portfolio changes have resulted in an increase in the fund’s delta ratio. “Our delta is now at 60 per cent, [having been] in the range of 20-35 per cent for most of this year,” she added. “A fairly significant increase to equity risk.”
The managers have also added significantly to its long US dollar versus short emerging market and commodity-exposed currencies.
JPM Global Macro Opportunities vs sector YTD
Source: FE Analytics
While the fund has provided investors with a strong three-year gain, in line with its investment objective, it has seen some challenges in 2016.
The fund has lost 4.51 per cent year to date, compared with a flat 0.6 per cent return for the average sector peer. It also been more volatile than its average peer (annualised volatility this year has been 6.65 per cent against 1.78 per cent for the sector), but this is to be expected given that the managers are allowed to take more risk to maximise returns.
“This year was challenging,” Rawlinson said. “We were lower for longer and growth was significantly priced into markets going into the election.”
“We won’t know whether that view would have come true, it’s a different world [now]. I think we’re very comfortable with position we have and our views on the US.”
JPM Global Macro Opportunities was recently added to the FE Invest Approved list, replacing the Standard Life Investments Global Absolute Return fund.
FE Invest’s analysts said: “Although the fund has a riskier approach than its absolute return peers (cash plus 7 per cent), we believe the team has the capacity to reach it. The process has proved its robustness over very different investment environments.”
The fund is overseen by managers James Elliot, Talib Sheikh and Shrenick Shah. It is also supported by client portfolio managers Rawlinson, Olivia Mayell, Mark Jackson and Jakob Tanzmeister.
The fund has an ongoing charge figure (OCF) of 0.78 per cent.