Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
Elect to stay invested and ride out ups and downs
Investors of a certain vintage will recall the stock-market adage, ‘Sell in May and go away, don’t come back until St Leger Day’.
The saying is based on the belief that returns during the summer months are negative so you should ‘time’ the market by selling out completely at the beginning of May and reinvesting in September in time for the horse racing meeting on St Leger Day.
Once upon a time there might have been an obvious seasonal effect in the UK market, but these days there is little evidence to support the view that you get better returns by sitting on the sidelines over the summer.
BEING OUT OF THE MARKET COULD HARM YOUR RETURNS
According to research from investment firm Fidelity, in 18 of the last 30 years returns have been positive between the start of May and the middle of September.
Being out of the market even for just a short period can have a negative effect on your returns as the table from JPMorgan Asset Management shows.
If you had invested £10,000 in 1999, just before the tech bubble burst, and left your money in the market without trying to time it, by the end of last year your average annual return would be 5.1% and your £10,000 would be worth over £25,000.
If instead you had tried to time the market but you missed just the 10 best days over those 20 years, your average annual return would drop to 1.7% and your £10,000 would be worth just under £15,000.
However if you missed the best 30 days or more, your returns would be negative and you would have lost money even though the market had gone up over the 20 years.
STAY INVESTED BUT HEDGE YOUR BETS
To cater for investors who would like to stay invested but want to spread their bets across income as well as growth stocks, JPMorgan Asset Management developed its Elect product.
Elect is a simple but tax-efficient way to switch investments between capital growth and income. If the worst comes to the worst and capital protection is the order of the day, there’s also the option to switch into cash.
MORE ON THE GROWTH FUND
The Managed Growth fund invests for capital growth via an internationally-diversified portfolio of investment trusts and open-ended funds managed by JPMorgan Asset Management and outside managers.
Katy Thorneycroft, who is managing director of multi-asset solutions as well as having managed the growth fund since 2006, selects the underlying investments to provide a globally-diversified asset base.
While discounts would be ‘nice to have’, the manager is more concerned with getting the asset allocation right than trying to bottom-fish for trusts trading below their net asset value.
‘The beauty of being multi-asset is that we can tap into the expertise of our various in-house teams and weigh up different strategies,’ says the manager.
The largest holding is JPMorgan Claverhouse Investment Trust (JCH), run by Will Meadon and Callum Abbott, with a mix of UK domestic earners such as Barratt Developments (BDEV) and Lloyds (LLOY) and mega-cap overseas earners such as GlaxoSmithKline (GSK) and Unilever (ULVR).
The UK makes up just under half of the fund’s total assets while North America represents roughly another third of assets. The rest is spread between Continental Europe, Japan, other Asian or emerging markets and cash.
OUTSIDE MANAGERS ALSO GET A LOOK IN
Most of the growth fund’s holdings are JP Morgan’s own funds but there are a few notable exceptions including Lindsell Train’s Finsbury Growth & Income Trust (FGT) and Baillie Gifford’s Murray Income Trust (MUT) which both feature in the top 10 holdings.
As well as picking managers with long track records of outperforming the big benchmarks, the fund also backs niche managers in secular growth areas such as impact investing.
‘I’ve held Impax Environmental Markets (IEM) since 2006 and I’m happy to continue holding it,’ says Thorneycroft. ‘It’s been a great performer and the team are doing a fantastic job.’
MANAGED INCOME PROVIDES A HEDGE
In periods when the growth style takes a back seat to value or income investing, Elect offers the option once a quarter to switch as much or as little of your Managed Growth holdings into the Managed Income or even Managed Cash versions of the investment trust.
The income version of the fund is managed by JPMorgan’s John Baker and Katen Patel and the top 10 holdings are a roll-call of the FTSE 100’s biggest dividend payers including Royal Dutch Shell (RDSB), HSBC (HSBA), British American Tobacco (BATS) and Diageo (DGE).
This approach enables investors to keep their exposure to the market but vary the degree of risk they feel comfortable with and not incur capital gains tax as long as the funds are kept in the Elect structure.