JP Morgan’s Michael Schoenhaut has reduced exposure to global and emerging market equities in the JPM Multi-Asset Income fund as they are facing “multiple headwinds”.
Schoenhaut, who co-manages the £421m fund with Talib Sheikh, took the portfolio’s equity weighting to its highest ever level of 50 per cent (including REITs) earlier this year, but has reduced this to 43 per cent over the past six months, mainly through reducing the fund’s exposure to global and emerging market equities.
The managers have reinvested the money by initiating a position in US investment grade long-dated corporates, which Schoenhaut says are offering a 5 per cent yield.
“We believe that adding US investment grade corporates helps diversify our fixed income exposure and offers attractive yields,” Schoenhaut says.
“The 30-year part of the curve remains attractive relative to other parts of the curve and this view is reflected in the positioning, which consists of only 30-year issues. Longer term spreads should benefit from natural long duration buyers, such as insurance companies, pension plans and other sovereign investors.”
The fund currently has a 2 per cent weighting in 30-year corporates having previously had no exposure, but Schoenhaut says he would like to take this higher.
“US investment grade corporates are offering an attractive yield and they bring down the risk in the portfolio. We may look to increase the position by 2 per cent.”
Schoenhaut is also bullish on high yield, the fund’s largest sector weighting now at 26.4 per cent, and is looking to increase the fund’s exposure.
“We believe fundamentals in high yield remain favourable; the Barclays Capital US Corporate High Yield Index yields over 7 per cent and default rates are expected to be in the 2-3 per cent range over the remainder of 2015, comfortably below a long-term average of about 4 per cent,” Schoenhaut says.
“We are seeing important growth in the US and a pick up in the labour market and in the consumer sector; it is a very good environment for high yield. We can earn a carry yield if we manage our interest rate exposure. We will be inching up our high yield allocation as we reduce our allocation to equities, although it is still an ok environment for equities.”
Over one year the JPM Multi-Asset Income fund has returned 1.4 per cent against the 3 per cent average of the Mixed Investment 20%-60% Shares sector, FE data shows.