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JPMorgan Glbl Share Discussion Threads
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Defensive income with capital upside potential
JPMorgan Global Convertibles Income initially performed strongly following its launch in 2013, having benefited from rising equity and credit markets. However, performance was negatively impacted by widening credit spreads during the second half of 2015. Having traded at a premium since launch, this more difficult period for markets coincided with a de-rating of the fund’s shares. In addition, currency exposure is fully hedged and as such, despite its very significant exposure to the US and Europe, the fund’s NAV has not benefited from the recent devaluation of Sterling. While share price returns have therefore been disappointing, the NAV has proved relatively defensive during periods of volatility and the fund’s prospective dividend yield of 4.9% is undoubtedly attractive. Moreover, the Board has stated that it would expect to buy back shares if the discount to NAV “exceeds 5% for any significant period of time”. We think that downside discount risk is therefore limited and that the current discount of 9% represents an attractive entry point. Taking all of this into account we continue to recommend the fund within the fixed income allocation of our model portfolio.
n Portfolio diversification has been increased over recent months and, with the approval of the Board, the managers have adopted a greater focus on total returns. While the fund’s portfolio yield has therefore fallen, the managers are confident that the investment strategy is capable of generating the necessary returns to achieve the targeted dividend. The Chairman has previously stated that it is “both achievable and desirable to maintain the dividend at the current level, even if it occasionally requires the use of capital” and in the fund’s recent annual results he re-iterated that it is the Board’s intention to maintain the aggregate annual dividend at 4.5p per share.
n Convertibles provide the potential for participation in equity upside with the downside protection of a bond. JPMorgan Global Convertibles Income is largely invested in “bond like” and “balanced̶1; convertibles, which offer higher yields with lower equity sensitivity. It also makes good use of the closed-ended fund structure, which allows the managers to take advantage of smaller, less liquid investment opportunities. The portfolio’s duration is relatively short at only 3.3 years, mitigating a degree of interest rate risk. The equity optionality of convertibles could offset the detrimental impact of rising interest rates on bond valuations. Transparency has significantly improved since the fund’s launch with portfolio holdings now published on a monthly basis.|
|Nice 5% yield here|
|Thanks - I've more or less stopped following this. So it has 104 holdings, and will behave as a tracker of convertibles. So many are sub-investment grade and I don't think a target dividend of 4.5p is all that attractive.
I've worked out that management fees are about 0.5% of net assets - reasonable. If there's a performance fee, it doesn't look likely to be awarded any time soon.|
|Holdings disclosed in interim report...
|Another Edison note out today.
I agree there is no good reason for the lack of disclosure of any individual holdings - I suppose Guernsey rules allow this?
I see investment grade securities are now down to 16% of the portfolio.|
|Falling trust share price, discount to NAV, unknown holdings.|
|Why on earth would the managers keep the holding a secret in this fund, all that blarney about the competition might copy the managers style. Investing is about confidence and hiding the holdings in a black box in a coal cellar don't do it for me.|
|Thats quite a tumble over the last few days.|
|"income chase" interesting idea seen elsewhere in the QE driven world CAL look worthy of a look thanks Jonwig.|
|A chase for income "at any price". Convertibles are supposed to be safer than equities on the downside, less upside push of course.
I passed this over in favour of Calamos Convertible and High Income Fund [NASDAQ:CAL] ... 7% yield after US withholding tax, though it has gearing. This has done well in sterling terms, reasonably in dollars.|
|Do they arbitrage their convertibles?
Why the premium?|
|Attractive income, cautious exposure to equities
JPMorgan Global Convertibles Income has enjoyed a strong start to its life, having consistently traded at a premium to NAV and grown its market capitalisation to £183m. Convertible bonds have the potential to provide an attractive yield as well as an element of participation in equity upside, while also retaining some downside protection. The portfolio is generally focused on higher yielding convertibles and the fund’s structure allows the manager to take advantage of some of the universe’s smaller, less liquid investment opportunities. In our view, the fund benefits from JPMorgan’s significant resource and consequent access to new issuance. We therefore believe it represents an attractive option for investors seeking an above‐market yield combined with defensive exposure to equities.
n JPMorgan Global Convertibles was launched in June 2013 when it raised £136m. It invests globally in convertible bonds and is managed by Antony Vallee, Global Head of Convertible Bonds at JPMorgan Asset Management. We believe the fund benefits from JPMorgan’s significant resource and access to new issuance.
n Convertibles provide participation in equity upside with the downside protection of a bond. The fund is largely invested in “bond like” and “balanced convertibles”, which offer higher yields with lower equity sensitivity. However, small and mid‐cap companies in which the fund is invested are likely to have a higher beta to the wider market. In our view, the fund therefore represents an attractive option for investors seeking an above market yield with cautious exposure to equity markets.
n The portfolio’s duration is relatively short at only 3.8 years, mitigating a degree of interest rate risk. The equity optionality of convertibles could offset the detrimental impact of rising interest rates on bond valuations.
n The fund is unique within the UK listed closed‐ended fund universe. It also makes good use of the closed‐ended fund structure, which allows the manager to take advantage of smaller, less liquid investment opportunities. This is reflected in the portfolio’s average credit rating, with only 20% being investment grade. However, the weighting to smaller companies with higher yields also allows it to target a dividend of 4.5p per share in its first financial year. This prospective dividend yield of 4.0%, compares favourably to that of broader equity markets.
*JPMorgan Global Convertibles Income Fund is a corporate broking client of Winterflood Securities|
|jonwig my knowledge of bond markets is fairly limited but i'm beginning to take an interest as sooner or later i feel we're going to see a significant market correction and although all asset classes will get hurt perhaps bonds will provide safer exposure.
My guess would be the ideal time to buy bonds would be when interest rates have risen and you anticipate them falling thereby increasing the value of the bond for sale in the market. The income on the bond remaining in line with inflation and hence interest rates thoughout it's duration to redemption.
So it seems to me we need a good dose of inflation! Followed by a transfer out of equities to bonds maybe, if i've got that right!
I've added on JRS this morning
|Woodcutter - I think you're right, but people will pay a premium for yield these days.
Holding non-investment grade will be their only chance to keep the dividend high.
By the way, I bought Calamos High Yield and Convertible Fund (NASDAQ:CHY).|
|i hold a number of JPM IT's, have held some of them for years and done very well from those investments typically JESC, JUSC and MRC and a few others too. Currently looking at these and possibly top up of my JRS too. But these look a little expensive at this price 108p.
Experience of new JPM IT's leads me to believe it will rise early on then come back to reality at some point, note JPB. This isn't the same risk perhaps but the principle is the same, only buyers early on as it gets recommended by IFA's etc.
Perhaps a good share to hold when the inevitable correction comes, it's on my watch list.
The quality grade is interesting, it's not without risk!
Investment grade 14.3 %
Sub-Investment grade 36.2 %
Non Rated 49.5 %
The non rated bonds may or may not be risky, perhaps the issuer isn't prepared to pay the cost to have them graded.
|Interesting Sector choices.|
|No, the premium isn't evaporating at all!|
|NAV has fallen by about 1% so far this month, and the premium seems to be evaporating.
But people will pay a premium for what they see as solid income, so I wonder how much lower versus the NAV?|
|make that 102 in a week!|
|104 here we come...|
|7 premium for a fund that can easily be replicated in open ended fund, suggest care is taken if buying now...|
|Useful summary in the IC, just out, covering JGCI and others - quoting 7.4% p.a. average (UBS Global Convertibles Index) from 1994 to 2012 compared with 5.3% on the MSCI World index.|