Aim: Growth of 5% above the Bank of England base rate by investing in a range of asset classes
Minimum investment: Lump sum £3,000, monthly £100
Investment split: 10-80% equities, up to 70% in convertible bonds, up to 90% in bonds, up to 90% in cash and equivalents
Isa link: Yes
Pep transfers: Yes
Charges: Initial 4.5%, annual 1.5%
Commission: Initial up to 4%
Tel: 0800 727 770
The JPM balanced total return fund is an Oeic which aims to outperform a cash benchmark – the 1 month Libor (sterling) – by 5 per cent, after the deduction of the annual management charge. The fund takes a multi-asset approach, investing in equities when equity markets look set to perform well, while switching into cash and cash equivalents, gilts and bonds when a decline in the equity market is expected.
Setting out the plus points of the fund, Morgan’s Independent Advisers director Martin Dilke-Wing says: “The product is potentially good for advisers and their clients in that it provides a degree of reassurance that in volatile market conditions, there is the potential for achieving positive returns by capturing the gains and avoiding the losses.”
Dilke-Wing thinks that like all funds of its type, the product tends to fall between two stools. “There is a targeted level of return set at an optimistic level of 5 per cent above base, but the only way of achieving this return is active asset allocation in a long only model. While the objectives of the fund are to anticipate market trends, the danger is that the fund could end up being simply reactive to swings in markets that have already happened in terms of its changes in allocation. This may make it unable to protect against sudden falls or to capture the beginning of market upturns.”
Casting an eye over the literature, Dilke-Wing thinks the information is clear and there are likely to be no ambiguities regarding client expectations. “The existence of a successful fund managed by the same team is helpful, as it’s the general perception of JPMorgan as a sound investment house with a wide range of funds. The adviser remuneration is standard and the charges are fair and reasonable,” he says.
Discussing the potential drawbacks of the fund Dilke-Wing says: “ In the event that the managers try to anticipate changes, as the prospectus describes, the danger is that they will misread signals. Given the fact that many managers preach the gospel that nobody ever gets market timing right consistently, it would appear that the objectives of this fund are directly contrary to this opinion.”
He feels it is too early to make direct comparisons across a range of market conditions between total return funds and the more traditional fully invested models to be able to tell whether the concept is viable without the alternative strategies that are available, mainly to hedge funds.
“I would also question whether it is suitable as a core holding for the more aggressive investor as it would appear to be rather more conservative than that in its approach. Although the examples provided in the literature of an investment strategy concentrating on using this fund as the nucleus of a portfolio with aggressive satellite funds taking positions in riskier markets will undoubtedly be appealing to some investors,” he says.
In Dilke-Wing’s view, the main competition is likely to be provided by similar funds that have achieved a degree of success over the last few years, notably Investec, Ruffer, Merrill Lynch and Credit Suisse. “For the more affluent investor, it is likely that funds of hedge funds offering more diverse strategies and the opportunity of selling short during periods of progressively falling markets rather than merely limiting the downside loss by progressively disinvesting are likely to prove more attractive – even given the recent adverse performance suffered by a number of hedge funds and widely reported in the press.”
For the mainstream investor, Dilke-Wing tends to prefer funds that used a derivatives strategy to achieve the same intended result, such as Swip’s absolute return funds.
“While my comments may appear to be generally negative, JPMorgan has achieved good returns with the cautious forerunner of this fund and I have no problems with using JPMorgan as a manager, in that its overall performance has improved noticeably in recent years.”
He says he would not put anybody off using this fund, although it is unlikely he will be recommending it to his clients until it has demonstrated that it can deliver the returns to which it is aspiring.
Suitability to market: Average
Investment Strategy: Average
Adviser remuneration: Average