katen patel

Written by Katen Patel

May, 2021

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New kid on the block with experience at the helm – JPM UK Equity Income Fund

The JPM UK Equity Income fund adopts an unconstrained approach to income investing, seeking companies across the market cap and dividend yield spectrum to offer capital growth alongside an attractive dividend yield. Companies held in the portfolio typically fall under three categories – More mature companies with a high dividend yield, long-term compounders with an average yield, and high growth companies with a low yield.

Since the arrival of positive vaccine news we have seen a strong rebound in the share prices of companies that could benefit from the re-opening of economies and a return to some sort of normality across the globe. I wanted to highlight three long-standing positions in the UK Equity Income fund that we believe have a positive outlook and characterize our approach to stock selection:

  • High yield – OSB Group – UK focused buy-to-let lender and Kent Reliance building society operating largely online/over the phone allowing efficient turnaround and strong customer satisfaction. A controlled and low cost base has led to a high margin, high returns business through the cycle. In addition, OSB is very well capitalized – last reported figures indicated a Core Equity Tier 1 ratio north of 18%. Given the strength of the balance sheet and high returns, once the regulator eases restrictions, I expect OSB to become a high yielding stock, whilst still generating attractive earnings growth.
  • Middle yield/compounder – Computacenter – Value added IT reseller with a large presence in Europe and North America – sourcing, implementing and assisting companies and governments with their technology requirements, be that moving into the cloud or stepping up cyber security, for example. I expect this increased channeling of capex spend towards technology to continue for a number of years to come and drive further growth for the company. Computacenter has seen significant earnings upgrades throughout 2020 and into 2021. The company has a net cash balance sheet which may be used for acquisitions or provide special dividends to shareholders on top of the 2% normal dividend.
  • High Growth – Future Plc – Content led platform for specialist media brands – e.g. Future operates websites such as Techradar, PCgamer, FourFourTwo, and Decanter, to name but a few. By attracting consumers to their sites who value their specialist content, Future monetize their web pages through advertising space and click-through income. Under the current management team the company has gone through a multi-year transformation into a global outfit with continued organic and inorganic growth opportunities ahead. They have a long history of consistently beating market expectations and strong cash flow generation. The current yield is minimal, however, in time once the business matures, the underlying strong cash generation of the company could allow for an attractive dividend. In the meantime, I expect strong earnings growth from the company.

2020 saw unprecedented cuts to dividends across the UK market and forecasts still only assume half of the 2020 cuts are recouped by the end of 2022 – this is partly a function of companies over-distributing prior to the pandemic and using the crisis to reset their pay-out ratios. However, since September 2020, dividend estimate momentum in the UK market has turned from negative to positive suggesting that the risk now lies to the upside for dividend payments as the difficult decisions have now been taken and visibility on the re-opening of the economy has significantly improved. This has also translated into positive earnings momentum in the market, and the fund has benefitted from strong results from a number of our large holdings leading to outperformance relative to the benchmark.

Since its inception (31 May 2017) to the end of April 2021, JPM UK Equity Income C Inc has delivered a net of fees return of 3.93%* vs the FTSE All-Share return of 2.80% resulting in it being in the top 5 percent of funds, in the IA UK Equity Income peer group, over that period.  Whilst at the same time delivering a yield of 2.91% over the last 12 months.  Not bad for a relatively new kid on the block.

*Past performance is not a reliable indicator of current and future results.

For Professional Clients only – not for Retail use or distribution

This is a marketing communication and as such the views contained herein do not form part of an offer, nor are they to be taken as advice or a recommendation, to buy or sell any investment or interest thereto. Reliance upon information in this material is at the sole discretion of the reader. Any research in this document has been obtained and may have been acted upon by J.P. Morgan Asset Management for its own purpose. The results of such research are being made available as additional information and do not necessarily reflect the views of J.P. Morgan Asset Management. 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. It should be noted that the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Changes in exchange rates may have an adverse effect on the value, price or income of the products or underlying overseas investments. Past performance and yield are not a reliable indicator of current and future results. There is no guarantee that any forecast made will come to pass. Furthermore, whilst it is the intention to achieve the investment objective of the investment products, there can be no assurance that those objectives will be met. J.P. Morgan Asset Management is the brand name for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. To the extent permitted by applicable law, we may record telephone calls and monitor electronic communications to comply with our legal and regulatory obligations and internal policies. Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance with our EMEA Privacy Policy www.jpmorgan.com/emea-privacy-policy. Prior to any application investors are advised to take all necessary legal, regulatory and tax advice on the consequences of an investment in the products. Investment is subject to documentation, which is comprised of the Prospectus, Key Investor Information Document (KIID) and either the Supplementary Information Document (SID) or Key Features/Terms and Conditions. These documents, together with the annual report, semi-annual report and instrument of incorporation are available free of charge from JPMorgan Asset Management (UK) Limited. This communication is issued by JPMorgan Asset Management (UK) Limited, which is authorised and regulated in the UK by the Financial Conduct Authority. Registered in England No: 01161446. Registered address: 25 Bank Street, Canary Wharf, London E14 5JP.

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