JPMorgan Global Core Real Assets 21 August 2024

The board of JPMorgan Global Core Real Assets (JARA) has unveiled a package of measures designed to increase the trust’s appeal to investors, ahead of a continuation vote due in the September AGM. The board is proposing to increase the yield generated by the portfolio and its diversification benefits without changing the risk profile, primarily by boosting the exposure to infrastructure and transportation assets, while reducing the exposure to real estate equity.

JARA owns a highly diversified portfolio of core real assets, spread across developed OECD nations and almost entirely outside the UK. Since IPO in 2019, the return target has been 7–9% per annum, with 4–6% to come from dividends. The intention is to keep the total return target, but for a greater proportion of returns to come from the diversifying yield of the infrastructure and transportation exposure. Having consulted with shareholders, the board argues that JARA can continue to serve as a core exposure to a broad set of prime real assets, and remains a unique investment proposition in the investment trust space – given its global portfolio – with a cohort of investors to whom it will continue to appeal. JARA continues to consult with shareholders ahead of the vote.

Higher interest rates have seen discounts on real asset trusts widen, and JARA’s board has bought back 5.6% of the issued share capital since August 2023, adding more than 1.3% to NAV per share. The proposal is to continue this buyback programme, balancing its cash requirements with those of the portfolio rebalancing. The period to the next continuation vote will also be reduced as a part of the package.

The managers argue that JARA is well positioned for a strong NAV recovery over the coming years, as the rate cycle turns, and expect annualised NAV returns of 10% over the coming three years.

In our view these proposals make JARA a more attractive investment. The outlook for total returns should rise if the team’s expectations for returns across the different allocations are realised, and importantly the outlook for income and diversification too. Given rates look likely to be above pre-crisis levels for some time, we think a higher yield is likely to be necessary to convince investors to hold the shares (and this may explain the current wide discount). These proposals seem to us to represent a far more positive strategy than simply buying back shares, which would reduce the size of the fund and the liquidity of the shares. Similarly, as investors re-enter the real asset market as sentiment improves, we believe vehicles offering greater diversification (as opposed to higher return/risk portfolios) may appeal.

Exposure to global developed infrastructure and transportation assets looks attractive to us, given the huge need for investment in pursuit of net zero and restructuring global supply chains. JARA is the only option for investors who want this in the investment trust space, and offers a slice of the institutional platform of the global asset manager within a retail-friendly vehicle. We think that with the shares currently trading on a c. 25% discount to NAV, the attractions for investors are only higher. If the continuation vote fails, then investors should receive NAV less costs. On the other hand, if it is voted for, then the continuing vehicle has an attractive NAV story as the rate cycle turns, with three-yearly continuation votes offering potential routes for realisation close to NAV.