Six years ago, chief investment officer Richard Madigan set out to reshape our team and redefine the way we build portfolios – with some impressive results.

Investing is a long-term process that requires patience, commitment and the ability to remain calm when the market fluctuates. The past couple of months have reminded us just how quickly the investment environment can change. That’s why we manage portfolios that are diversified by asset class and geography, which are better able to withstand the unexpected.

This approach has paid off, with all our balanced funds ranking top decile over three years. See chart below.

A leading performance

How do our funds compare with Morningstar median manager data over the past three years?
Source: Morningstar. Data as of 31 March, 2020. Performance is shown net of all fees. Past performance is no guarantee of future results.
An infographic showing Morningstar rankings for our balanced portfolios. GBP fund ranked 2nd out of 1,166. EUR fund ranked 3rd out of 1,800 and USD fund ranked 9th out of 746 funds.

The star performer, our EUR balanced strategy, returned over 18% in 2019.

Read this important information in conjunction with the above chart.

What has been particularly pleasing is that the portfolios have performed well in the strong markets of 2019, but also protected well during the volatility of the first quarter of 2020.

Breaking the mould

As experienced investors know, asset managers can have standout years of performance and sometimes even three in a row. We’re confident we can continue to deliver strong and consistent investment results owing to the experience of our team and our approach to investing.

Six years ago, our chief investment officer Richard Madigan recognised that superior risk-adjusted returns would require a lower cost structure and greater specialist expertise. Yet at the time our business fitted the standard industry mould – so he set out to reshape our team and redesign our approach to investing.

Since then we’ve hired asset class specialists with institutional investment backgrounds from the likes of Blackrock and Wellington. In an uncertain world, depth of expertise to navigate markets is a true competitive advantage.

To closely align the team’s objectives with those of our clients, Richard has linked remuneration to investment performance and some of that remuneration is retained within the funds that they run. This approach gives the team a clear incentive to focus solely on finding investment opportunities and navigating risks.

Efficient and cost effective

The second big change that differentiates the way we invest is by implementing our views using passive vehicles. Over the past few years, the universe of ETFs and index funds has expanded rapidly. We can now invest in equities in specific regions, industry sectors and factors (styles) using passives – thereby looking to add value at three levels. Within fixed income markets, we use a combination of active funds for areas such as high yield combined with targeted passive bond vehicles, several of which have been created solely for J.P. Morgan Private Bank with attractive underlying pricing.

There are two benefits of this approach for managing portfolios:

  • We can measure and monitor underlying positions precisely to manage risk, which is not possible when investing in active funds because they don’t report in real time.
  • Portfolio costs have fallen dramatically. For instance, our US dollar balanced mandate (excluding alternatives) has an average vehicle total expense ratio (TER) of just 0.13%.

How has this helped protect your capital in 2020?

These changes give our team the ability to invest with precision and conviction. All decisions are backed by extensive internal fundamental research on the investment environment and the potential returns from different asset classes and regions.

The contrarian investment decisions we made in 2018 and 2019 have boosted portfolio performance. In addition, they’ve helped protect your capital throughout the coronavirus pandemic when market conditions have become more volatile. As of the end of April 2020, the GBP balanced fund had declined by only 3.9% having returned nearly 15% in 2019.

Notably, our fixed income positions made a positive return in the first quarter of 2020, helping to offset the falls in equity markets. At the start of 2019, we sold our exposure to high yield bonds and throughout the year invested in high-quality investment grade credit and government bonds. This strategy paid off when conditions became volatile as the coronavirus crisis hit.

When Richard set out his vision for the future of private wealth management, he felt there might be first-mover advantage for a year or two. Today, we still don’t see a rival firm combining an institutional and fundamental research-based approach, implemented through passive vehicles. It’s a combination we believe will continue to serve our clients well as we seek to preserve and grow their wealth.

If you’d like to find out more please contact your J.P. Morgan adviser.