JPMorgan Global Core Real Assets 04 August 2021
Disclosure – Non-Independent Marketing Communication
This is a non-independent marketing communication commissioned by JPMorgan Global Core Real Assets . The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.
JPMorgan Global Core Real Assets (LON:JARA) invests in real assets on a global basis, offering exposure to a highly diversified portfolio spread across real estate, infrastructure and transportation assets. JARA invests mostly in institutional funds run by the J.P. Morgan Global Alternatives Group which themselves invest in private assets and are usually not available to retail investors. These make up 80% of the portfolio, with around 20% invested in liquid, public investments such as REITs. The aim is to generate a 4-6% yield and 7-9% total return while offering diversification, inflation protection and resilience.
JARA recently reached full investment, which means we can give a detailed look at the look-through portfolio for the first time (see Portfolio section). The strategy involves buying high quality, core assets with stable income streams and which are expected to show resilience and diversification through tough environments. The trust is now paying a dividend in line with its target at launch, with 1p a quarter amounting to a 4.3% yield on an ongoing basis.
As we discuss in the Performance section, the underlying performance of the assets has been good through the COVID-19 volatility, but the NAV has suffered due to the fall in the US dollar since JARA launched in September 2019. Currency is unhedged, with the managers believing over the long run, moves will wash out. Over the long term the portfolio is expected to display equity-like total returns, from much lower volatility and with low correlation to equities and bonds. We note the fall of sterling against the dollar since the last NAV which should, all things being equal, provide a tailwind.
JARA’s shares trade on a premium to NAV of 4.1% after a brief period trading on a discount.
JARA has had somewhat of a baptism of fire, with the managers having to face the challenge of investing the IPO proceeds during the pandemic and having the misfortune of a significant depreciation of the dollar, which have hit sterling NAV returns in the short run; although those in part have recently reversed. We think the long-term case for the trust is as strong as ever. A key attraction is diversification. JARA offers access to private assets usually only accessible by institutions. With its heavy US / Asia exposure, JARA complements the UK and Europe focus of most infrastructure and property trusts. The underlying portfolio includes 288 private investments and over 850 individual assets, minimising any specific risks. JARA also offers access to specific asset classes which are not commonly available, such as Asia-focussed logistics, US residential property and high quality global transport assets. This highly diverse, global portfolio is possible thanks to the breadth and depth of the J.P. Morgan Global Alternatives platform.
In the medium term we would expect demand to remain high for real assets, which should be supportive of the share price rating. Key reasons include the yield – rates are likely to remain low in our view – but also the inflation protection and the diversification benefits such investments provide relative to equities. We would note that JARA has significant exposures to industrial property and renewable energy, both of which sectors generally have been awarded high premiums, and it also benefits from a level of diversification hard to get elsewhere.
|JARA offers access to a huge global platform of alternatives, usually restricted to institutions
|Higher yields from alternatives are available, although largely in more specialised areas or without the core, quality focus
|Real assets typically offer low correlation to equities or bonds
|Although dollar exposure has fallen, JARA is still structurally short sterling, so a rally in the pound would hinder returns
|Attractive dividend from diversifying sources
|Underlying holdings are illiquid, as are the investments in the constituent funds which typically apply lock-ups