Clare Hart and Jonathan Simon have managed JP Morgan’s US income funds since 2002. The firm’s US income strategy launched in 2004 and was initially only available to US-based investors.
JPM US Equity Income was launched in the UK in December 2008 with Hart as lead manager and Simon in support. Both have substantial industry experience: Hart has 18 years while Simon has been investing for more than three decades. They are supported by a dedicated analyst who is backed up by a sizeable analyst team.
The managers believe they can deliver superior returns to the index by centering their investment process on dividend-paying companies.
Stocks are therefore screened to meet a minimum two per cent yield threshold. Further screens identify stocks exhibiting sufficient liquidity coupled with low price multiples, such as the debt/market-cap ratio.
These commonplace quantitative screens are assessed together with a qualitative filter which includes meetings with industry contacts and information sourced from trade journals.
This initial quant-qual screen whittles down the investable universe of 7,000 stocks to around 400 names that meet the managers' basic investment criteria.
Fundamental research then focuses on quality defined by three pillars: product strength, measured through barriers to entry; corporate management, assessed through efficient capital allocation; and cashflow, which can be an indicator of dividend sustainability.
Valuation is mainly used as a cross-check to analysis but the managers are conscious to leave themselves enough room to pick up income stocks in some of the more growth-oriented sectors. The price/earnings ratio is typically higher than the S&P 500 index, which contrasts with most other income funds that apply stricter value disciplines.
In terms of portfolio construction, the managers build a diversified portfolio of approximately 100 stocks. There is a large degree of flexibility in regard to sector-allocation; for example, a single sector can in theory account for 50 per cent of the portfolio. However, the managers have typically kept sector exposure much more in line with the index and deviations of 10 per cent away from the benchmark allocation are rare. Stock positions start at 1 per cent and are trimmed at 5 per cent in order to mitigate stock-specific risk. The managers’ risk-aware approach to portfolio construction results in a tracking error in the order of 4 to 6 per cent.
Olliver Kettlewell, investment research analyst at OBSR, said: "For a dividend fund, JPM US Equity Income gives relatively diversified exposure to the US market while still outperforming its peers."
"We think this broad approach to income is well supported with an analyst team comprising approximately 30 research analysts."
"Although not exclusive to the income strategy, this group of analysts is designated as a core/value team, meaning many of the fund’s income stocks fall within their scope. Performance drivers have come from a variety of sources, in keeping with the portfolio’s less-biased nature towards traditional income sectors."
Performance of fund since launch vs sector
Source: FE Analytics
Data from FE Analytics shows the fund has returned 53.62 per cent since launch, slightly behind its IMA North America sector average.