JPMorgan Global Growth & Income 29 June 2021

JPMorgan Global Growth & Income (JGGI) offers investors a portfolio of global equities. The managers, Helge Skibeli, Rajesh Tanna and Timothy Woodhouse, aim to maximise total returns with their stock selection, but the trust pays out 4% of its financial year-end NAV as a dividend by tapping into both its revenue and capital. Paying out of capital allows the managers a degree of flexibility not typically associated with equity income investors, as they can focus on the maximisation of total returns and invest in growthier, lower-yielding names.

As we outline in the Portfolio section, the managers have begun to allocate to more value-oriented stocks since Q4 2020. With the potential resolution of the COVID-19 crisis in sight, they believe that future markets will no longer have the same clear trends and will thus enter an environment where stock-picking will be more important, which they believe will benefit the flexibility of their approach.

The benefits of the flexible mandate can be seen in JGGI’s performance, as it is the best-performing global equity income trust over one, three, and five years at the time of writing. JGGI has also performed strongly on a risk-adjusted basis, demonstrating the managers’ successful value-add, though it has achieved this with greater volatility than its peers. We detail JGGI’s strong performance further in the Performance section.

JGGI currently trades at a 2.7% premium, perhaps reflecting its sector-leading performance. JGGI is one of the few trusts in the AIC Global Equity Income sector to trade at a premium, and has largely done so since the implementation of its current dividend policy in 2016.

JGGI’s ability to pay a dividend from capital is one key benefit of the closed-ended structure. It means the managers are able to follow a total-return-maximising objective without having to sacrifice capital profits for income. As a result, the JGGI team are not constrained by the need to invest in high-yielding names, with the current portfolio having a tilt towards growth-oriented stocks not typically associated with the sector. We therefore believe that JGGI offers income investors a great source of diversification to the typical exposures, allowing them access to regions and sectors their income requirement might otherwise prevent – such as mega-cap technology, which has contributed to high returns in recent years.

However, we note that the managers are currently aware of the valuation risks in growth stocks and have been rotating more towards value, in line with their stock-specific approach. This is still arguably the biggest risk associated with JGGI compared to its peers, as the team’s ability to invest in growth stocks could increase the trust’s relative valuation. As we are potentially coming to the end of trend-driven markets thanks to the pandemic and its recovery driving fewer of the market tailwinds, we believe investors would benefit from a more flexible approach like JGGI’s, as it is better able to adapt to a market increasingly driven by stock-specific risks.

JGGI’s dividend policy means it cannot be guaranteed to be progressive, but so long as the managers can continue to increase the NAV, the dividend should grow alongside it. Although there remains the potential for a dividend cut if the financial year end falls on a down market, this has yet to occur under the new policy.