The year to June was a ‘challenging’ period for JPMorgan Global Growth & Income (LON:JGGI), according to chairman James Macpherson. Nevertheless, the board remains confident in the investment strategy, having beaten the benchmark in eight of the last 10 years.
A ‘challenging’ year
For the year to June, JGGI posted a 16.7% NAV (net asset value) total return against 27.7% for the MSCI All Countries World Index. The share price return over the same period was 15.1%.
‘This shortfall in relative performance was mainly the result of unfavourable stock selection, although asset allocation decisions also detracted to a more modest degree’, commented Macpherson.
‘In particular, stock selection within the technology sector proved a drag on relative returns as the managers underestimated the scale and market impact of the AI investment boom. The bias in favour of businesses with durable growth potential meant the portfolio was underweight momentum at a time when sentiment, rather than company fundamentals, was the main performance driver.’
On a five-year basis, the cumulative NAV total return was 76.9%, still ahead of the 75.3% return for the benchmark. Over 10 years, the NAV total return was 273% against 235%, with the share price return even better at 330%.
As the managers admit, it has been hard to keep up with the benchmark when returns have been so skewed. JGGI isn’t a tech fund or a tracker fund, and in a normal year 16.7% would be an impressive return.
These aren’t normal times, though. The global benchmark is 72% weighted to the US and 30% to the technology sector. Any variation from those allocations means you stand little to no chance of outperforming.
The firm’s model didn’t pick up on the market’s willingness to overlook earnings cyclicality, so it has been tweaked. Also, the managers’ underweight to the momentum factor cost the fund as the market continued to buy overvalued stocks.
As the managers say, however, these kind of extremes rarely prove durable. Moreover, these periods typically bring ‘an unusually rich vein of opportunities which we can mine, in the expectation they will enhance portfolio returns during the subsequent rebound’.
