Winnersrationale

Private banks have been gradually reducing their underweight exposure to European equities in recent months. In addition to highly attractive valuations compared with US stocks, what contributed positively to the performance of European equities were: fiscal and monetary support, the global growth recovery, the diversified revenue exposure of European companies and the long term structural trends such as digitalisation, which was accelerated by the COVID-19 pandemic

J.P. Morgan Asset Management benefited from this return of interest with hundreds of millions of dollars in inflows into its range of European equity strategies for the 12 months ending 31 August 2021, including rising fund flows via private banking platforms in Asia. This is compared with sizeable net outflows in the preceding 12 months. The positive inflows have been more tilted towards thematic, equity income and value strategies within Europe equity.

Within J.P. Morgan Asset Management’s range of European equity strategies, JPMorgan Funds – Europe Dynamic Technologies Fund has demonstrated a strong and consistent record of outperformance by 7.5% per annum over the past two decades. The Fund has outperformed its benchmark in 19 of 21 calendar years since inception and is the top performer among the European equity peer group on a 10-year basis.

The strategy has seized the valuation gap between the European technology sector compared to the US and Asia over the last couple of years. In particular, the fund managers at a very early stage identified a Netherlands-headquartered multinational, which specialises in design, manufacturing, sales and service of semiconductor wafer processing equipment for the fabrication of semiconductor devices. The company is the leader in the deposition technologies, having more than 50% market share. By including the company in its JPMorgan Funds – Europe Dynamic Technologies portfolio at an early stage, the Fund benefited immensely from a rally in the stock price.

With a strong long-term track record and the proven ability to identify the next big opportunities in Europe’s stock markets, J.P. Morgan Asset Management is Asian Private Banker’s Best Fund Provider – Europe Equity for 2022.

Winners rationale

Private banks and gatekeepers have been keen on introducing geographical diversity in investment management to sidestep the US-China trade tensions that have been the source of much global volatility, especially in high-growth stocks in mainland China.It is no surprise then, that European investments have found favour among Asian investors. A particularly attractive candidate has been Fidelity Funds’ European Dynamic Growth Fund, which has consistently outperformed its benchmark over various time periods on a cumulative basis since its inception in January 2001. In 2020, it distinguished itself from peers by its outperformance and the sheer consistency in doing so.

As of 30 September 2020, the A-EUR share class had outperformed its benchmark by over 21,000 bps. The fund’s unconstrained and active approach allows for the best ideas to be expressed in a high conviction manner. The fund typically owns between 50 to 60 stocks, with active money usually more than 80%.

The fund’s mid-cap bias means the fund has exposure to some of the more attractive and undervalued growth opportunities which are less followed by the wider market, enabling access to the hidden gems. But despite its mid-cap bias, the fund’s beta has typically been below 1 — with volatility lower than the reference benchmark.

Fidelity’s European Dynamic Growth Fund’s investment approach is underpinned by a high-conviction, benchmark unconstrained, and concentrated management philosophy, where thorough fundamental bottom-up research drives the portfolio’s underlying composition. The fund has a high growth and quality bias style, where the managers select stocks which exhibit a strong and sustainable growth profile over the longer-term with high barriers to entry.

Underlying stocks must display strong quality growth characteristics to be included in the portfolio. Quality characteristics include market winners that enjoy a firm leadership or monopolistic position in their operating industry, as well as names with strong balance sheets, robust cash flows and a high earnings visibility. These companies in turn tend to display higher growth rates, and the fund selects its underlying composition from this pool of names. The portfolio is also deliberate in favouring companies which operate in structurally growing markets.

Overlaying this approach is a strict valuation discipline, and a target investment hurdle rate of at least a double-digit internal rate of return on a per annum basis. Stocks which no longer have firm upside potential are trimmed from the fund in a very disciplined manner. This strong emphasis on bottom-up stock picking means that, over the longer term, the fund’s outlook is more heavily dependent on its underlying stock specific merits rather than on external macro or exogenous factors. This explains how it was able to better navigate through periods of extreme market shocks and dislocations historically.

For these reasons, Fidelity has been selected as Asian Private Banker’s Best Fund Provider – Europe Equity.

Winners rationale

In a challenging year for European equities, J.P. Morgan Asset Management’s resilient competitive advantage was on full display by dint of its unique European equity behavioural finance team, which, through disciplined active management, has been driving the firm’s European product innovation and differentiation.

Against the backdrop of political uncertainties in the Eurozone and dampened investor sentiment, the JPMorgan Funds – Europe Equity Plus Fund has delivered a since-launch return of 70.6% as at end-September 2018.

The fund’s performance showcases the European equity team’s judicious application of common sense philosophy within a rigorous, bottom-up process to exploit persistent market inefficiencies that have arisen due to human behavioural biases, achieving competitive long-term risk-adjusted returns.

A flagship offering for private bank clients, the fund extends the insights of portfolio managers by utilising short positions to generate alpha and manage risk more efficiently, enabling greater performance consistency. Crowned with a five-star Morningstar rating, the fund is one of a kind in the space.

Meanwhile, the JPMorgan Investment Funds – Europe Strategic Dividend Fund has also generated competitive yields relative to its key peers, with its (mth) EUR class offering a 12-month annualised yield of 5.2% as at end-August 2018. Designed for investors seeking exposure to high-yield stocks in Europe, the fund is one of the firm’s best-selling among its private bank clients.

A consistent innovator of European products and funds, J.P. Morgan Asset Management’s IEG behavioural finance investment team manages assets worth EUR 42 billion — an amount reflecting the asset manager’s range of solutions, excellent performance, and high-quality servicing.

Little surprise, then, that Asia’s private banking gatekeepers crowned J.P. Morgan Asset
Management Asian Private Banker’s Best Fund Provider – Europe Equity.