JPMorgan Cautious Total Return aims to focus on capital preservation, managing volatility and pursuing positive returns over the medium term, but has not performed well recently earning it a place on discount stock broker Chelsea Financial Service's lists of worst-performing funds.
JPMorgan Cautious Total Return is included in Chelsea's most recent 'RedZone' list of worst-performing funds in each of the last three discrete years. Each fund in this list has produced third- or fourth-quartile returns among its fund peer group in each of the past three years.
The fund is also eighth worst performer in Chelsea's DropZone, a list of 10 funds from the RedZone which have also underperformed their fund sector averages by the largest amount cumulatively over three years. JPMorgan Cautious Total Return has underperformed the Investment Management Association's Mixed Investment 20%-60% Shares sector average by 25.07 per cent over the three years to 1 August 2012.
"Generally, the fund is run with a mandate of very low volatility which has been difficult to achieve in the markets of recent years," says Chelsea. "More recently, they have been running the portfolio with very low levels of risk and while equity markets surged they failed to take part in the rally. They also underestimated the positive impact of the Long Term Refinancing Operation (the European Central Bank's loan scheme to help eurozone banks), and when they did add more equity risk in March, it was just at the wrong time. It means they have continued to lag their peers."
However JPMorgan has made changes to turn around the fund's performance. "We will increase the number of stocks from around 30 to about 100 which will increase diversification, and as a secondary benefit allow us to better hedge the equity portfolio when we want to take risk off," says Mike Parsons, head of retail sales at JPMorgan Asset Management. "We will also allocate up to 10 per cent of the fund to non core assets such as high yield bonds, mortgage-backed securities, emerging market debt and gold. We will access non core fixed income in-house, for example via the JPMorgan Strategic Bond Fund. We will access gold via an exchange traded fund (ETF).
We have implemented all of these changes in the portfolio, and expect improved performance in the short term. But we have not changed the overall risk profile of the fund and remain cautiously positioned."
