JP Morgan UK Equity Plus Fund

If a fund manager does not want to own a company’s shares, what can they do? The JP Morgan UK Equity Plus Fund aims to make money if company shares fall in price, as well as rise.

Background

A traditional equity fund owns shares in a range of companies. In doing so, it is trying to identify share prices that it thinks are going to go up. The finance industry’s jargon calls that being ‘long’ a company. The UK stock market is dominated by very large companies operating in the oil and gas, mining, and pharmaceutical sectors. A UK fund manager may not like one of these multinational businesses but is forced to own its shares to ensure the fund does not perform too differently to the benchmark. Investors should rightly ask why fund managers are investing money into companies they think are not good investments.

What is different with this fund?

The JP Morgan UK Equity Plus Fund has an extra string to its bow. Like other equity funds, it owns a portfolio of UK shares that it thinks are attractively valued and with good growth prospects. It can also increase its exposure to its most favoured companies by borrowing money to invest.

But this fund is also able to make a profit if the price of a share falls. In simple terms, it does this by firstly selling the shares of a company it thinks are overpriced. This is known as being ‘short’. If the price of the shares then falls, it will buy them back at a lower price than they sold them for. For example, if they sold a share at the start of the trade for £2, but spent £1 buying them back in the future, the difference – £1 – is their profit.

Why should you invest in this way?

Investing in this way allows the fund’s investors to take full advantage of the investment process. If JP Morgan’s research and analysis is good, it can make money in two ways for its investors instead of one. JP Morgan has used the same investment process for over 25 years and believes its track record in running funds like this shows it is able to identify shares to be both long and short.

Is this approach more risky than a traditional equity fund?

Very importantly, the fund is carefully put together so that it is not taking more risk than you would find in a traditional equity fund. The vast majority of the fund is invested in the traditional way – in companies the manager expects to do well. The extra exposure to the market it takes from borrowing money to invest is completely offset by the shares that it is short.

For example, if the fund borrows 10% of the value of the fund and invests it in companies it thinks will do well, it will also be short 10% of the fund’s value in companies it thinks will fall in price. In doing this, the fund is not taking on lots of extra risk compared to other funds or its FTSE All-Share benchmark that do not borrow money or use short positions.

It owns around 80 companies ‘long’, offset by about 50 ‘short’. The team normally takes only small short positions and closely watches them once in the fund. If they think they have made a mistake, they try to act quickly and close the position so that it does not lose too much money.

Like with any actively managed fund, future good performance is not guaranteed from the JP Morgan UK Equity Plus Fund. Over time, however, the fund has the ability to develop a performance history that manages risk in a more efficient way than most other equity funds. Investors should be willing and able to own the fund for at least five years and past performance is no guarantee of future returns.

In addition to the JP Morgan UK Equity Plus Fund, there are several more funds on the Barclays Funds List which invest in the UK market and which you may like to consider. Find out more information on these funds.

Correct at the time of publishing.

To diversify your investment, you may like to consider our own Barclays Ready-made Investments (RMI). The RMI are just one example of a range of diversified funds which allow you to select the level of risk you are most comfortable with. These Barclays multi-asset funds invest in passive funds across a range of asset classes and regions, offering a globally diversified solution for investors. Ready-made Investments are not the only funds that we offer and they won’t be appropriate for everyone.

Past performance of the fund and its manager are not a reliable indicator of their future performance.

We don’t offer personal investment advice so if you’re unsure you should seek that independently.

Funds are designed for the long term so you should only consider them if you can stay invested for at least five years.

These are our current opinions but the future, as ever, is uncertain and outcomes may differ.

Read the Assessment of Value report [PDF, 3.2MB] for funds run by Barclays.