JPMorgan is looking to launch an investment trust that provides a steady income with less than two-thirds of the volatility seen in global equities by investing in real assets such as infrastructure and transport.
JPMorgan Global Core Real Assets, which is to be run by Pulkit Sharma and Jason DeSena, will aim to deliver a net asset value total return – a measure of performance excluding its own share price movements – of between 7 and 9 per cent a year once it is fully invested. This includes a target dividend yield of between 2 and 3 per cent in the trust’s first year, with the target rising to between 4 and 6 per cent once it is fully invested.
The trust will invest in funds run by JPMorgan’s Global Alternatives division. This includes Global Transport Assets, Global Infrastructure Assets, which invests in regulated utilities, airports, and power-generating assets, Global Real Estate Assets and Global Liquid Real Assets, which will have listed holdings such as real estate investment trusts.
Previously, these funds were only open to institutional investors such as pension funds. However, JPMorgan Asset Management global alternatives investment specialist Philip Waller said the company planned to make them available to private investors via the trust in response to strong demand for high-quality income.
Real assets have long been seen as reliable providers of income because they provide vital services and are less vulnerable to changes in the economic cycle than the likes of equities. Real assets can also perform well, in terms of both income and growth, when inflation goes up. For example, real estate cash flows and values tend to rise with inflation, in part because leases will reflect moves in inflation when they are renewed.
Ben Willis, head of portfolio management at financial advice business Chase de Vere, said: “These are not cyclical assets as they tend to be defensive, income-producing assets with long-term leases or contracts. As such, they will be seen as recession-proof investments that have a tendency to hold up well in recessionary times."
However, the new trust will face plenty of competition, with many investment trusts focusing on real assets in different forms over recent years. Two trusts focusing on renewable energy infrastructure – US Solar Fund (USF) and Aquila European Renewables Income (AERS) – launched in the first half of 2019 alone.
Some existing trusts have done well, contributing to the £4bn raised in secondary funding in the same period. Greencoat UK Wind (UKW), for example, raised £506m, the most raised by any single trust in the first half of 2019.
However, Mr Waller suggested there was sufficient demand for a new entrant in this space, adding that the trust’s global approach would help it stand out from the competition.
“There's still a lot of demand for a range of real asset-type strategies in the closed-end structure. We believe an investment trust providing access to real assets on a global basis is truly differentiated and should have a buyer base,” he said. He argued that most global real asset trusts have a strong UK bias, meaning JPMorgan Global Core Real Assets should complement these as portfolio holdings.
Some popular real assets names can have significant UK allocations, although these do vary. At the end of June HICL Infrastructure (HICL) had 77 per cent of its assets in the UK while BBGI (BBGI) had a 35 per cent weighting here.
The JPMorgan trust will likely be placed in the Association of Investment Companies’ Flexible Investment Sector.
While investment trusts are well suited to holding illiquid assets, investors should remember that they can also suffer from share price volatility. Mr Waller noted that the trust’s share price “could at certain times trade differently to the net asset value of the underlying funds and this can be at a premium or under”.
However, risk mitigation has been factored into the fund. Its global remit lends it an element of diversification, and the managers say the fund will be invested in more than 500 real assets, so no one holding should have a major effect on the trust’s performance as a whole.
The trust's management fee is intended to vary between 0.98 per cent and 0.87 per cent, with a tiered charging structure based on its level of assets. However two of the underlying funds can charge performance fees in certain conditions. Hargreaves Lansdown analyst Laith Khalaf said investors "need to be comfortable with these before dipping their toes".
In terms of initial asset allocation, the trust is to have between 30 and 50 per cent of assets in the Global Real Estate fund, with between 10 and 30 per cent in each of the other three funds. The offer for subscription on the trust closes at 1pm on 18 September, with the final commitment through placing closing a day later.
