The key aim of JPMorgan Global Growth & Income (JGGI) is to generate total returns in excess of that of the MSCI ACWI over the long term. The investment managers (Helge Skibeli, Rajesh Tanna and Timothy Woodhouse) look to achieve this by identifying the companies around the world which will be the long-term structural winners from a number of key secular themes.
Since 2016, the trust also aims to pay out at least 4% of NAV in income each year, based on the NAV at the start of the year and paid in quarterly instalments. This can be paid out of capital, which means the investment managers have not had to change their high-conviction, valuation-sensitive approach to stock-picking. It also means the portfolio is considerably different to those of most peers in the AIC Global Equity Income sector because the investment managers can hold companies in high-growth sectors which don’t typically pay high dividends.
Due to the ability to hold growth companies, the trust has a strong track record for capital appreciation relative to the sector. Over the past five years JGGI has significantly outperformed the average trust in the AIC Global Equity Income peer group, as we discuss in more detail in the Performance section.
Since the change in dividend policy in 2016, JGGI has seen a dramatic turnaround in sentiment and, after reaching lows of close to a 16% discount in June 2016, the trust has spent the past two years consistently trading at a premium to NAV before the coronavirus-inspired sell-off saw it fall onto a discount.
We see JGGI as the perfect ‘core holding’ for income-seeking investors looking to diversify outside the UK. As we noted in our article 'Rethinking UK equity income' last year, UK equity income trusts are highly concentrated in a few big names, which we think is a potential cause for concern for investors. Just eight companies made up over 50% of the yield of the FTSE 100, according to Bloomberg figures from August 2019, many of which have quite uncertain futures.
With just 4.9% of the portfolio in the UK and high exposure to growth sectors which are less held by the typical UK equity income fund, JGGI is a great diversifier for income-reliant investors who don’t want to have ‘all their eggs in one basket’. In particular, the high weighting to information technology and low weighting to consumer defensives, energy and materials are differentiators from the average UK equity income fund. Furthermore, the ability to pay dividends from capital means that investors can have a high degree of confidence in the payout being maintained.
JGGI is currently trading at a 4.3% discount, which we think represents an attractive entry point given the yield, diversification and total return potential it offers, as well as the trust’s tendency to trade on a premium in recent years until the coronavirus outbreak saw indiscriminate selling in global markets.
|High visibility on future dividends, with an attractive level of 4% of NAV paid each year||Gearing can magnify losses in falling markets as well as gains in rising markets|
|Provides income from sectors, geographies and growth stocks which diversify well UK Equity income funds||The income is not 'natural', which some investors prefer|
|The cheapest OCF in the sector||There is a performance fee, which some may not like|