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JP Morgan launches sustainable global macro strategy
It has been a busy start to the year for JP Morgan Asset Management (JPMAM), with the recently launched Global Macro Sustainable Fund seeking to capitalise on a profound structural shift in global investor preferences toward sustainability. Investors and advisers are increasingly seeking out less-correlated alternative asset classes and to ensure their investments are having a positive impact on the future of the global economy and environment. The fund offers investors a real opportunity to have a positive impact on climate change.
Run by the same team as the Global Macro Opportunities fund, which delivered a return of 13.2 per cent in 2020, the Sustainable fund offers a forward-looking approach to tackling climate change by delivering long-term sustainable financial returns in a fast-changing world. The fund launch comes at an opportune time after newly elected US President Joe Biden made ESG investing a key focus with proposed regulatory changes, which could prove the final push that drives ESG investing to become the ultimate megatrend.
Investment strategy
Environmental, social and governance (ESG) investing is shaping up for another bumper year, following two highly successful years for ESG-themed investments. JP Morgan recorded US$1.7 trillion ($2.2 trillion) in ESG integrated assets under management as at 31 March 2020. This sector is tipped to explode further this year, as attitudes towards climate change rapidly evolve. Climate change was once as a relatively distant concern but has suddenly become an imminent and urgent threat to humanity with more and more countries committing to net zero emission targets by 2050. As the world reaches this point of no return, investors and fund managers want to take action and create real change; to measure and manage climate change risk and to identify and position new innovative low-carbon investment opportunities into client portfolios.
The fund employs a macroeconomic research process to identify global investment themes and opportunities. The majority of its returns are expected to be generated from the ‘sustainable securities’ in the portfolio after incorporating ESG factors, exclusions and positioning the portfolio positively towards companies with above-average ESG scores. JP Morgan says “the fund will hold long and short exposures across equity, fixed income, currency and volatility, with ESG risk analysis integrated into investment decision-making.” Individual companies will be assessed and selected using available data to evaluate an ESG rating and ESG factors’ effects on long-term cash flows. Companies or sectors that had exposure to weapons, tobacco and fossil fuels will be excluded.
The fund aims to “achieve a return in excess of its cash benchmark by investing globally in a portfolio of sustainable securities, currencies and using derivatives where appropriate.” Sustainable securities are those either bond, equity or otherwise, that the investment manager believes show effective governance and superior management of environmental and social issues, says JP Morgan.
The Global Macro Opportunities fund (on which this strategy will be based) was one of the standout performers in 2020. The strategy, best described as being able to ‘go anywhere’ oscillated its asset allocation between bonds and equities in 2020, being able to both protect capital during the sell-off but not miss out on the eventual recovery. The strategy differentiates itself by not relying solely on investing in index funds or in-house ETFs, but being able to benefit from individual sector and stock ideas generated by the huge research capabilities of JPMAM.
The fund will be run along the same thematic line as the existing strategy, with nine key themes, secular and cyclical, including climate change, US recovery, widespread technology adoption, global policy evolution, and emerging-market consumer demand at the centre of the portfolio. The fund does not have a low volatility target, meaning management has the ability to harness equity markets when returns are on offer, with the fee set at 0.85%.
