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The JP Morgan and Standard Life (SLI) funds invest via a global macro allocation and use derivatives to hedge risks and leverage. They belong to the category of multi-strategy as defined by Morningstar. But Goldsmith said these two strategies differ from each other substantially.
The JP Morgan fund has the more aggressive approach, aiming for cash plus 7%. The fund does not use a specific benchmark.
At the end of December 2017 (the latest data available), it had 47 equity positions, one bond position and 270 “other” holdings, which are comprised of derivatives, such as currency forwards, according to Morningstar.
“The JP Morgan fund currently takes the more equity risk of the two.
“[Multi-strategy managers] are usually macro people and are not thinking about individual stocks. The JP Morgan fund is an exception. It is quite unusual to have the stock-specific risk that the JPM fund has.”
In addition, the managers have a larger appetite for investing in emerging markets mega-cap equity assets, including technology and financial sectors. But Goldsmith noted that some of the ideas in the JPM portfolio are held for few weeks or even days. Therefore, portfolio turnover is quite high.
He also noted potential concentration risk in the JPM fund, compared to the SLI fund and other multi-strategy funds.
“The JP Morgan fund has a concentrated equity risk in the portfolio at the moment. But the team seems to get their timing right in buying and selling the stocks. I have a certain amount of comfort about that risk mainly based on the experience and strong background of the managers investing in equities.”
Turning to the SLI fund, Goldsmith said it takes a classic multi-asset approach to generate a Libor +5% return over a three-year rolling period. The fund invests via a basket of stocks that are already available. There are only a few individual stocks and fixed income positions in the portfolio and they are used to offset the illiquidity of some of the investments in a basket.
The SLI product also sizes each idea according to the contribution to risk rather than the more traditional approach of under- or over-weighting versus a specific benchmark index, according to Goldsmith.
Equity region exposure
|JP Morgan (as of 30 Apr)
|Standard Life (as of 28 Feb)