JPMorgan Multi-Asset 01 July 2020

The JPMorgan Multi-Asset Trust (MATE) aims to achieve an annualised return of 6% p.a. over the market cycle by investing across various asset classes, but principally in equities, bonds and infrastructure. Returns are expected to be derived from both income and capital growth, with the investment managers currently targeting a 4% income yield.

The managers, Katy Thorneycroft and Gareth Witcomb, draw on the extensive resources at JPMorgan to build a portfolio that looks to achieve these targeted returns within the defined volatility range. They aim for volatility to be two-thirds that of global equity markets. Using internal Long-Term Capital Market Assumptions (LTCMAs), JPMorgan expects this strategy to result in an annualised portfolio volatility of between 8% and 12% over the longer term.

As we discuss in the Portfolio section, Katy and Gareth utilise the research capabilities of JPMorgan’s Multi-Asset Solutions team, with significant input from both qualitative- and quantitative-research teams. Their starting point is a strategic asset-allocation framework founded on the LTCMAs, which provides ten- to 15-year estimates of risk, return and correlations between over 50 asset classes. Over the shorter term, they apply an active asset-allocation overlay, adjusting their exposure in line with the team’s latest macro thinking.

Presently the trust is yielding 4.3%. It has paid a quarterly dividend of 1p per share in line with its target since launch. Income is sourced from a variety of asset classes, and the team have this year introduced the sale of covered call options to further boost income generation. MATE currently trades on a discount of c. 8.6% (as of 17/06/2020), below the median level since launch.

MATE offers a dividend yield of in excess of 4% at current prices. The introduction of the covered call writing strategy seems likely to support this income going forward, as additional premiums are likely to be collected at times of market stress which are likely to coincide with a challenging dividend environment. In general, the tactical input to the strategic asset allocation (SAA) seem to have been beneficial even as NAV returns have trailed those of the SAA (as explained in the Performance section). Under present market conditions the income streams look relatively secure, though a sharply inflationary environment may prove a challenge to maintaining the 4% dividend over the medium to long term given the relatively fixed nature of a significant proportion of the underlying income generation.

Whilst the discount of c. 8.6% is reasonably wide for this type of product, there does not appear to be any immediate catalyst for it to close. The present size of the trust likely precludes significant institutional buyers, whilst thin trading volumes lend themselves to a wide (for this type of trust) spread which may deter smaller retail investors. However, income-focused investors might view the present discount as an opportunity to buy what could be a secure income stream at a discount (hence boosting their yield received).