JPMorgan Multi-Asset

Targeting a 4% income yield, MATE invests across several asset classes...

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Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by JPMorgan Multi-Asset. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

JPMorgan Multi-Asset

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.

Kepler View

MATE offers what appears to be a reasonably secure dividend yield of in excess of 4% at current prices. The introduction of the covered call writing strategy seems likely to further secure 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 particular 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-focussed investors can view the present discount as an opportunity to buy what is likely to be a secure income stream at a discount (hence boosting their yield received).

bull bear
Dividend stream looks reasonably secure, and is available at a discount at present Small size of trust has consequences for liquidity
Very well-resourced team with a significant amount of depth in analytical input Similar income yields are available from generic credit funds at present
Diversified sources of income Will not suit investors who want to control their asset allocation
Callum Stokeld
Callum joined Kepler as an investment trust analyst in July 2019. Prior to this he worked as a senior investment analyst on a range of multi-manager, multi-asset portfolios, having previously worked at IFA firms in roles focused on oversight of fund selection and asset allocation. He graduated from the University of Glasgow with an honours degree in Law.

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