At its recent Annual General Meeting, JP Morgan American Trust voted to approve changes to its investment process. The trust will move towards a more concentrated, active approach, and ultimately a somewhat higher risk approach. This is part of a wider trend we are seeing across active management; fund and trust managers are increasingly moving towards higher conviction portfolios in an effort to differentiate themselves from passive offerings.
As part of the changes, the trust will split its large cap portfolio split in two, with one half focusing on value stocks and the other focusing on growth stocks. The split between the two portfolios will vary between 40-60%. New managers will be appointed for each portfolio: Jonathan Simon (Value), and Timothy Parton (Growth), and each will be limited to investing in 20 stocks each.
The trust will also remove the performance fee, with this change back dated to January 2019. Management have agreed to waive their management fee for nine months, beginning on the date of the adoption of the new strategy on June 1 2019. The small cap portfolio and gearing policy will remain unchanged.
While the temptation is to see these changes as a response to the rise of passives, active management naturally tends to cycle between more diversified and less diversified approaches. More diversified managers risk delivering benchmark-like performance, but the probability of significantly below-par performance is lower. Both managers of the JP Morgan American Trust are experienced investors, but trust holders should be aware that the changes entail a greater spread of potential outcomes.
The competition between active and passive funds just got a little bit hotter. Salt Financial has just launched its Salt Low truBeta US Market ETF, which will offer investors a 0.05% rebate on invested assets – for the first $100m into the ETF in its first year at least.
This is clearly a marketing incentive to attract new funds to the ETF, rather than anything else. But it highlights the intense competition within asset management on fees. It is not impossible that we see the first fund to pay investors in the near future. Fidelity Investments has already won the race to a zero fee ETF, and asset managers could make money by lending out stocks which actually belong to passive investors.
Ultimately, this is good news for investors. Competition from passive has pushed down the cost of active investing. We have been able to use this dynamic and our buying power to push down the cost of funds for our own investors, securing a number of discounts not available elsewhere.
Speak to an Investment Manager today to find out how we can help you with your investment objectives.