The moves are in part to enhance the fund’s return and income profile but they also coincide with the group moving the fund into the IMA Cautious Managed sector, having previously sat in the Specialist peer grouping.
Manager Olivia Mayell says as the additions are in keeping with the fund’s global, unconstrained mandate.
The initial allocation to emerging market income is 7% and is invested in a separate portfolio run by JP Morgan AM’s emerging market team, headed by Richard Titherington. As the team already runs an emerging market income investment trust Mayell says this was the best way for the multi-asset fund to gain diversified exposure to this story.
This is not a transitional move and represents a shift in the allocations within the portfolio. Likewise the covered call strategy will be an ongoing process but initiated on equity holdings within the fund on a case-by-case basis.
At the moment the team is writing covered calls on around one third of its equity positions which, excluding the emerging market income, is 38%. The strategy has been deployed for around two months now and is already booking profits, Mayell says. While it does provide a boost to overall income, of around 0.5% to 1%, she notes the decision to implement the strategy was more about maintaining a consistent yield on the portfolio. At the moment the fund is yielding 4.9% net of basic rate tax, which she says makes it one of the highest yielding portfolios in its new peer group, the Cautious Managed sector.
The multi-asset portfolio is currently pro-risk rather than defensively positioned. Outside its equity and emerging market income exposures the portfolio has around 6% in global Reits, 32% in high yield bonds, 8% in emerging market debt and 5% in non-agency mortgage-backed securities.
Mayell says she has not held corporate bonds in the fund for almost 18 months now, feeling it lacks any real value at this time as opposed to the high yield end, where there is attractive compensation for risk taken.
