Understanding the drivers of returns to build diversified portfolios

When it comes to choosing a fund, UK investors have a choice of 3,000 at their fingertips. Building a peer group to decide which fund to choose is helped by the Investment Association (IA), which has grouped these strategies into 30 broad sectors. These categories are a good starting point. But to really understand what drives returns for each fund—and make sure that investors are building well-diversified portfolios—we need to dig a bit deeper.

Go to the profile of Chris Skinner
Sep 05, 2016

Take the IA UK All Companies sector. With 274 funds to choose from, many investors and clients use quantitative screens to narrow down the list before doing a deeper dive into the sector. But this approach could restrict the choice of funds to a shorter list of strategies that all derive their returns from the same part of the market—reducing the diversification benefits in the process.

In December 2015, for example, the top decile of funds (27 funds) had an average of 42% in mid-cap and 45% in small-cap. This isn’t surprising given the outperformance in this part of the market up until December 2015. But year to date, these funds are 77th percentile on average as mid- and small-cap stocks sold off, emphasising the importance of combining diversified UK equity funds.

That’s why analysing holdings to understand exactly where fund returns are coming from is critical to ensuring that investors have diversified portfolios that can help generate stronger risk-adjusted returns over the long term.

Read more about J.P. Morgan Asset Management’s UK equity fund range:
UK Adviser |
UK Asset Manager

For Professional Clients only – not for retail use or distribution. Unless otherwise stated, data is sourced from J.P.Morgan Asset Management, Morningstar, SimFund, as at July 2016. Please be aware that this material is for information purposes only. Any forecasts, figures, opinions, statements of financial market trends or investment techniques and strategies expressed are, unless otherwise stated, J.P. Morgan Asset Management’s own at the date of this document. They are considered to be reliable at the time of writing, may not necessarily be all-inclusive and are not guaranteed as to accuracy. They may be subject to change without reference or notification to you. JPMorgan Asset Management Marketing Limited accepts no legal responsibility or liability for any matter or opinion expressed in this material. The value of investments and the income from them can fall as well as rise and investors may not get back the full amount invested. Past performance is not a guide to the future. Issued by JPMorgan Asset Management Marketing Limited which is authorised and regulated in the UK by the Financial Conduct Authority Registered in England No: 288553. Registered address: 25 Bank St, Canary Wharf, London E14 5JP. 0903c02a816c0b3d

Go to the profile of Chris Skinner

Chris Skinner

Portfolio Specialist, J.P. Morgan Asset Management

Chris Skinner leads the Portfolio Insights Analytics service in EMEA for J.P. Morgan Asset Management. Through this service he provides a consultative review of clients model portfolios to help clients build stronger portfolios. Chris is a member of the Product Development Leadership Team and the Sustainable Investment Leadership Team. Prior to his current role Chris has worked in client services, program management, training and product strategy, where he specialized in analysis of third party UK and European mutual funds. Chris is a member of the IA Sector Committee. He is a CFA Charterholder, has obtained the Investment Management Certificate and he graduated with a BA (Hons) in Economics from the University of Nottingham.


Go to the profile of John
John 6 months ago