JPM Global Equity Income
This is a core equity income fund. It has a value tilt and will invest globally – including in emerging markets - in large to mega-cap stocks. Managers Helge Skibeli, Sam Witherow and Michael Rossi aim to achieve a superior yield, without sacrificing growth. With the aid of a huge global team of analysts, they filter down the whole global market to a portfolio of 40-90 stocks.
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Helge Skibeli, CFA, is a Managing Director and portfolio manager at J.P. Morgan Asset Management in London, leading the Global Core Portfolio Management Team. With the firm since 1990, Helge previously served as Global Head of Developed Market Equity Research, Head of US Research in New York, and Head of Asia ex-Japan Research in Singapore. Earlier in his career, he was a research analyst for European autos and basic industries. Helge holds an MA in General Business from the Norwegian School of Management and an MBA from the University of Wisconsin-Madison, and he is a CFA charterholder.
Sam Witherow, an Executive Director at J.P. Morgan Asset Management in London, is a portfolio manager in the International Equity Group. He joined the firm as a graduate trainee in 2008 and previously specialized in the energy sector as a global sector specialist. Sam holds a BSc (Hons) in Economics and Politics from the University of Bristol and is a CFA charterholder.
Michael Rossi is an Associate and portfolio manager within the J.P. Morgan Asset Management International Equity Group in London. Since joining the firm in 2019, he has been a member of the Global Core Portfolio Management Team, focusing on income mandates. Before J.P. Morgan, Michael worked at HSBC Global Asset Management. He holds a Master’s in Finance from the London School of Economics and Political Science and a BSc in Economics and Finance from the University of Exeter.
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Company Description
JP Morgan Asset Management is one of the largest asset and wealth managers in the world. It has more than 150 years of investment experience, providing clients with strategies and expertise that span the full spectrum of asset classes through its network of investment professionals located around the world.
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Investment process
The investment process, which has been in existence since 2007, is built on the analysis conducted by JPM’s global research platform of over 90 analysts who are based in Europe, the US and Asia. They collaborate closely with the fund’s managers, giving them an on-the-ground research presence, and cover around 2,500 stocks in total, which they narrow down to a portfolio of around 40-90 holdings.
The managers have three sources for ideas - high growth, high yield, and compounders (the core of the portfolio). They start by looking at, and understanding, the structure of an industry, with the help of the global sector teams, to produce an industry framework, identifying long-term trends and how a business sits within these, which companies are winners and which are losers, taking a 5 to10-year view.
Potential holdings are assessed through three lenses:
Economics: does the company produce good returns for shareholders? They look at all factors that might influence the amount of capital needed to run a business, and how that capital is used, to understand that company’s economic returns.
Duration: can the observed returns be sustained in the future? The team needs to feel confident in a company’s ability to sustain returns, having considered the potential impact a range of risk factors and management choices would have on a business.
Governance: will the expected returns accrue to shareholders in full, or be impaired by poor governance? The team examines factors like management competence, capital allocation and shareholder focus.
Once the analysts have looked at these three elements, they will assign each company one of four strategic classifications - premium, quality, trading and structurally challenged. The classification of a company is reviewed on a regular basis.
The managers follow a buy and hold strategy, only selling a stock if they believe that it no longer exhibits the characteristics that, in their opinion, support a resilient or growing dividend, or if the valuation no longer appears attractive relative to alternatives.
While ‘compounders’ make up the bulk of the fund (usually around 50%), the managers can diversify the returns and risk by having some holdings in both the high growth and high yield buckets, depending on valuations in the market. Dropping the yield requirement means they can invest in some of the more growth-style stocks, like cloud computing, whereas taking a higher yield allows them to take more macroeconomically sensitive ideas. This helps diversify the income stream in terms of taking on a bit more income and providing a bit more defensiveness. Correlation between the three ideas buckets (high growth, high yield, and compounders) is low, making for a less volatile portfolio. The fund tends to be structurally underweight internet and media, so won’t do as well when these sectors are driving markets.
Risk
The firm has a dynamic risk approach, applied by both the managers and the compliance team. They use external reports, generated daily, to ensure they take no unintended bets, and risk models to monitor the risk profile of the portfolio. Single stock limits are set at a maximum of 5%. The managers will be subject to quarterly reviews, which will look at the fund’s profile versus its objectives.
ESG
ESG - Integrated
JPM takes an integrated approach to ESG investing, and considers environmental, social and governance (ESG) as financially material in investment analysis and investment decisions. JPM addresses ESG issues at three different stages of the stock selection process: research, engagement, and portfolio construction.
Research: JPM’s analysts incorporate ESG considerations into their analysis to gauge the sustainability of a business, the quality of management and any potential risks. Such considerations are addressed in their 40-question ESG Checklist, with 12 specific questions on environment, 12 on social and 16 on governance. The primary goal is to identify the key risks and potential opportunities associated with the company. Engagement: JPM believes active engagement with companies, not only to understand how they consider ESG issues but also to try to influence their behavior and encourage best practice, is key to the investment process. Where social or environmental issues are the subject of a proxy vote, JPM will consider the issues on a case-by-case basis. Portfolio construction: while JPM does not exclude individual stocks explicitly on social, environmental, or ethical criteria, ESG factors could affect the degree of conviction and impact a stock’s position sizing during portfolio construction.
They also use the ESG scorecard which provides a proprietary score for a company, with the categories and things to look at determined by themselves. It contains a mixture of quantitative and qualitative scores to allow them to rank companies from 0-100. This score is used as an information base, but not as a limit to what they can buy. It helps to embed ESG risks into the investment decision, but isn’t a determination of what the fund can or cannot invest in.
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