J.P. Morgan Asset Management has been running long-short strategies in the US, Asia and Continental Europe and in September 2015, brought this active extension expertise to the UK equity market by launching the JPM UK Equity Plus fund.
The fund is managed by members of the European Behavioural Finance team based in London. It uses the same research engine as the desk’s flagship active extension fund, JPM Europe Equity Plus, which has been top quartile in 7 of the last 8 calendar years. Portfolio manager, Nicholas Horne, is named on both the European and UK active extension funds, bringing his extensive expertise to the newly launched UK fund. The other managers, James Illsley and Callum Abbot, are UK specialists.
Our investment process looks at all the stocks in the universe through the lenses of value, quality and momentum. It is as adept at picking those stocks that are likely rise in value as well as those stocks which are likely to fall. Fundamentals suggest, and historical analysis supports, the view that stocks which are cheap, high quality and have strong momentum outperform, whilst expensive, low quality stocks tend to underperform.
Chart 1 below shows the annual returns to our investment process relative to the FTSE All-Share split into quintiles. The best stocks in our process have delivered 10% annualized alpha over the long term, but crucially the worst stocks have underperformed by 12%. Clearly a fund which makes the most of these insights is desirable.
In active extension funds, shorting allows us to overcome the long only constraint discussed earlier, so we can effectively express negative views to generate alpha.
The chart below (chart 2) compares capital allocation to our process for an active extension fund and a long only fund. It shows that you can potentially get up to 50% more active money into our best insights, thus making the most of our process.
- We have a strong heritage of active extension investing.
- Our process is as adept at identifying winners as losers.
- Active extension enables us to increase exposure to our highest conviction ideas.in the UK equity market.
Callum Abbott is fund manager of the JPM UK Equity Plus Fund. Read more about the fund: UK Advisers
 There can be no assurance that the professionals currently employed by J.P. Morgan Asset Management will continue to be employed by J.P. Morgan Asset Management or that the past performance or success of any such professional serves as an indicator of such professional’s future performance or success. specialists.
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