There was no single, defining ‘moment’ when JP Morgan’s Clare Hart (pictured) realised she wanted to be an asset manager. Before she wound up on Wall Street, she was dreaming of a career in law, working as a paralegal in Chicago, but she was soon put off by the fact that none of the partners were nice to each other. Then came a stint as a public accountant, which she found “too boring”.
Hart contacted a friend at Morgan Stanley who told her she could use her skills in constructing postmortems on busted businesses and create company forecasts instead. Shortly after, she landed a gig on the sell-side at Salomon Smith Barney covering Reits, before broadening her focus as an analyst for Flemings, which eventually became part of JP Morgan.
She is now at the helm of the $21bn JP Morgan Equity Income Fund, which happens to be the largest US equity fund run by a woman, having been on the mandate since February 2002. In total she manages more than $35bn (£27.52bn) for the bank’s investment arm.
She realises she is “really lucky” to be in a small club of female managers, and an even smaller club that is running so much money. “I’m grateful because if I were trying to do this someplace else, without the resources, the people and support, I don’t think the strategy would be as large as it is.”
‘Deep value’ is cheap for a reason
Working for a $2trn asset management business like JP Morgan has its perks, such as access to the firm’s extensive research desk. There are three analysts that work on Hart’s US equity income strategy directly and another 30 or so analysts that provide additional support.
For Hart, the JP Morgan name is a foot in the door to breakout sessions with senior management during the dizzying conference season where thousands of investors, analysts and journalists are vying for attention and information.
As a bottom-up equity income manager, Hart is looking for quality companies on a reasonable valuation that, most importantly, pay a dividend yield. Stocks must have a minimum 2% dividend yield to even be considered for the portfolio.
This generally precludes companies in what she calls the “deep value bucket”, that “may or may not turn themselves around”. “If it’s deep value, it’s probably very cheap but it’s cheap for a reason,” she says.
Dovish Fed
Hart continues to like domestic financials despite a more dovish stance from the Federal Reserve and the flattening of the yield curve.
Chair Jerome Powell has done an about-face on his rate-rise regime amid weaker economic and inflation data, and amid persistent taunts from Trump. The president has slammed the central bank’s monetary policy as “insane” and repeatedly called for a rate cut.
More than 27% of the JPM US Equity Income Fund is in financials, but Hart notes this is diversified and spread out across banks, life insurers and asset managers, which will behave in different ways in the low-rate environment.
“When the Fed changes its opinion on rates, people get spooked and the banks don’t do well, our insurance names do well. There’s ballast in the portfolio within that financials bar. It’s not 26% in three regional banks, because then you really are tied.”
Not looking to invest in the third best asset manager
Of the asset managers, Hart owns Blackrock, which is in the fund’s top 10 holdings, and T Rowe Price. She regards these as the leaders in passive and fixed income, and active management, respectively. She believes there is room in the market for active and passive houses to co-exist. “In my mind it’s not unlike a bank that has tellers available, or you can use the ATM or do it on your phone. It’s your money, you figure out how you want to manage it, with a person, on the machine or through your phone.”
In such a hyper-competitive sector, Hart isn’t looking for the third, fourth or fifth best.
“I’m in the asset management industry, so I know the way the business models work. You can’t really have the one who doesn’t have the best capabilities, so if we can’t own JP Morgan, I’m out trying to buy other people’s equities, I think T Rowe and Blackrock are the best way I can access that.”
The Ucits version of Hart’s JPM US Equity Income Fund has delivered a mixed bag in terms of performance relative to its peers in the IA North America sector, landing in the first quartile over one year, third quartile over three years and second over five, according to FE Analytics.
The US stockmarket is notoriously difficult to outperform but Hart isn’t trying to chase the benchmark. “Being a long-term investor, I’m going to consistently try to find the best-quality companies I can within the value world, and I’m going to make you as much money as possible doing that.
“I’m not trying to argue this is going to do better than international equities or growth companies; I’m saying that, in my world, I’m going to find you the best companies I can.”
US/China standoff not the next Cold War
One of the biggest perceived threats to global growth in the near-term is the standoff between the US and China on trade. In the UK, copious commentators have hailed it as the next Cold War and a bigger danger than Brexit.
Hart believes comparisons between the current US/China conflict and the Cold War are misguided. “There is going to be tension there but I think cooler heads will prevail.
“We will come to an agreement that won’t be as onerous as what it’s looking like right now, 25% tariffs and another couple of hundred billion dollars that are going to be under the magnifying glass, because that’s not a long-term solution.”
The biggest risk to GDP growth in the US is the consumer, and Hart doesn’t see any risks on the horizon with unemployment at low levels and wage growth “ticking up”.
“Consumers are doing a great job, in terms of cleaning up their balance sheets and keeping them healthy, probably a better job than the corporates have done.”
Walmart will survive Amazon
Though she typically avoids the retail sector, Hart added budget superstore Walmart to the fund in Q4 2018. She thinks Walmart is one of the few retailers that will survive five years from now and be able to stand toe to toe with the formidable Amazon.
“I feel like they could almost live in parallel universes and capture different consumers and different wallets,” she says. “There are people who can afford and will choose to pay the Amazon Prime membership and have things delivered, even though it might not be the least expensive way to get a product. There are other people who are going to choose not to pay that and go for a better price and they will go to Walmart.”
Hart is also eyeing up potential plays in healthcare, another ‘hot button’ topic in the US political landscape. Medicare-for-all has become a major talking point for Democratic 2020 hopefuls Bernie Sanders and Elizabeth Warren, which Hart believes has put a “tremendous amount of pressure” on managed care companies.
“That’s an area where we might have an opportunity at some point this year,” she says. “If the rhetoric really heats up into the election, and it probably will, those names will continue to go on sale and we’ll get an entry point into that part of the market, which I currently don’t have exposure to.”
According to Hart, valuations around oncology drug companies and stocks in the energy sector, which is seeing more largescale M&A deals, are also something to keep an eye on.
Biography
Clare Hart joined JP Morgan in 1999 and is a portfolio manager and managing director in the US Equity Group. She is lead manager of the JP Morgan Equity Income Fund and the JP Morgan Growth & Income Fund. Prior to joining, she was with Salomon Smith Barney’s equity research division as a research associate. She began her career at Arthur Andersen, working as a public accountant.
