James Elliot, Shrenick Shah and Talib Sheikh shifted nearly a quarter of the fund’s exposure (22.5%) into what they dubbed the ‘low inflation theme’ at the end of January.
The longs on healthcare equities and telecoms have been taken because of the attractiveness of their yields on a relative basis.
The other side of this low inflation play is going short on energy equities, the managers said. This is based on the expectation that oil prices may undershoot forward pricing.
The Bank of Japan moving to negative interest rates early this year provided the team further assurance that low inflation is not going anywhere soon.
Other steps being taken by the fund at the moment include protecting itself in the event of a potential illiquidity induced event by purchasing long Japanese yen versus short US dollar call options. In January the fund took profits on this and replaced it with long euro versus short US dollar call options.
In contrast to most funds, the make-up of the JP Morgan trio’s fund is expressed in terms of investment themes. At present the £168m fund has 22.5% invested in the ‘low inflation’ theme, 15% in ‘supply side weakness’, 14.5% in ‘emerging markets rebalancing’, 13.4% in ‘Europe gradual growth recovery’, 12.7% in ‘US economic strength’, and 9.3% in ‘China in transition’.
