Optimism is helping JPM Global Macro Opps return to form

However, things did not go so well last year - it fell 3.2 per cent against a sector average rise of 1.1 per cent, while broad indices such as MSCI World and the FTSE All-Share returned 28.2 per cent and 16.8 per cent.

The fund performed well until just after the Brexit vote last year when it was invested with an expectation of low growth and inflation. "The composition of our portfolio sought to benefit from that, so we held more defensive equity sectors such as healthcare, telecoms and utilities, and were short sectors that were linked to economic growth, including materials, industrials and energy," explains Shrenick Shah, co-manager of JPM Global Macro Opportunities. "Until just after the Brexit [vote] the market was quite defensive and risk off, so our composition worked really quite well. But in the second half of last year the market started to price in some element of global growth."

But after the US election last November the fund's managers stopped investing with the view that low inflation was a driver of asset prices, so were less in "defensive sectors, and started to introduce more cyclical sectors such as tech, financials and materials, which is really quite leveraged to global growth, and a reflection of our more optimistic view on this".

And this year the fund's performance is bouncing back - it is up 4.3 per cent in the year to date.

But it is likely to experience some volatility because it has a higher exposure to equities than some absolute return funds, with around 80 per cent exposure to this area at the end of May, a reason why JPMorgan suggests holding the fund for at least five years.

"Some absolute return funds operate with, for example, a volatility aim of around 5 per cent, whereas we manage ours to be less than 10 per cent over the medium term, so might take more risk than some sector peers," explains Nicola Rawlinson, client portfolio manager in the multi-asset solutions team at JPMorgan Asset Management. "We have tended to use equity quite a lot as a way to express the macro themes because it's quite an easy way for us to reflect a theme and that is where a lot of the team's expertise lies. But we have also had equity exposure as low as 5 per cent so are currently at a fairly high level."

The fund has been successful in meeting its sub-10 per cent volatility target, with a level of 7.9 per cent over three years as at the end of May.

The fund's managers try to take advantage of mis-pricing of macroeconomic trends in markets, and invest the fund along the lines of a number of themes they think will be the most prevalent over the medium term.

"The starting point is thinking about the world and how we delineate that into themes, and what the probabilities are around different scenarios within each theme," explains Ms Rawlinson.

Currently the fund is invested in seven themes: US economic strength, European gradual growth recovery, supply side weakness, global policy divergence, emerging market rebalancing, Japan beyond Abenomics and China in transition.

"Typically we wouldn't have fewer than six themes because we want some diversification, and we wouldn't have more than 10 because the idea is to focus our efforts in the areas we think are most relevant," adds Ms Rawlinson.

They then look for 'strategies' to express these, which could be equities, bonds or derivatives such as Vix (volatility) index futures.

They have recently changed two themes. "We've changed US economic strength to maturing US cycle to reflect progress through this current expansion," says Mr Shah. "And we've become more positive on emerging markets. Until recently the theme was called emerging markets rebalancing because of imbalances that needed to be worked through, for example current account and debt imbalances. We had that theme for four years. We now have a more optimistic view because many of the imbalances in these countries are being worked through, allowing the more positive underlying dynamics to come to the fore. In large part this is emerging markets consumption. And we've named the theme emerging markets convergence because gross domestic product (GDP) per capita, productivity and institutional frameworks are converging to developed market levels."

They are also optimistic on China. "The Chinese economy is quite strong and the authorities are using this strength as an opportunity to clean up some of the financial imbalances, such as off-balance-sheet leverage," says Mr Shah. "We think that the market should be rewarding this action."

Another way the fund's managers are looking to take advantage of improving economic growth is via internet and semiconductor shares. "Semiconductors are a cyclical component, so generally when economies are doing well there's increased demand for semiconductors," says Mr Shah. "We hold Asian and US technology shares. The Asian component so far has held up a bit better, but they are driven by the same factors - stronger demand from end users. And we think these factors are persistent and here to stay. Despite recent market noise, the reasons for holding these stocks and the valuations remain quite compelling."

However, the fund bought a put option on the Nasdaq index which cushioned some of the losses recently experienced by US tech shares. A put option is a derivative, which like going 'short' takes a bet on an asset falling. Shorting is a technique commonly used by hedge and absolute return funds.

But Mr Shah adds: "Relative to our history we have a small amount of short strategies just now because we are optimistic."

Annual total returns

*As at 26 June 2017

Source: Morningstar

Cumulative total returns

Source: Hargreaves Lansdown/FE as at 30 June 2017

Theme break down as at 31 May 2017

Source: JPMorgan Asset Management