A strong start to the year has prompted the board of JP Morgan Global Growth & Income to cut gearing to zero as manager Jeroen Huysinga searches for new growth opportunities from across global markets.
The three FE Crown-rated trust aims to provide “superior capital growth and outperform the MSCI All Country World index over the long-term by investing in companies based around the world”.
While the trust has drawn more attention for its recent switch to an ‘enhanced dividend’ policy, a more recent change to the fund has been the reduction in the trust’s gearing levels.
“We have taken gearing down from 6.5-7 per cent for five years to 0 per cent,” he said. “Just over the past few weeks, markets have been very strong. We’re not expecting a bear market, it’s just a tactical thing, something we have discussed at the board [level].”
Huysinga said part of the reason was the question of whether they believed companies would see the same returns in the latter half of the year as were reported during the first six months of 2017.
Last year the investment trust’s board adopted a new ‘enhanced dividend’ policy, allowing it to pay dividends from capital raised through investment realisation. The move allowed it to adopt an annual 4 per cent dividend target through quarterly pay-outs.
Since the change, the fund has seen increased interest from more income-minded investors, particularly as the low interest rate environment continues. This can be seen in the trust’s discount which has moved to a premium of 1.61 per cent, compared with a 12-month average of 5.02 per cent, according to Winterflood Investment Trusts.
Discount/Premium over 5yrs
Source: FE Analytics
“The expectation of further interest rate rises in the US and the rotation away from ‘bond proxies’ seen over the last six months, in our view, also make JPGI [JPM Global Growth & Income] an attractive way to diversify income given that its investment approach is focused on growth and valuations rather than income stocks,” wrote Kieran Drake, research analyst at Winterflood Investment Trusts, earlier this year.
Huysinga said the move has not affected the trust’s investment strategy and he continues to invest as he has done so since the current strategy was set up in 2003.
The manager, who took over management of the trust in 2008, said despite reducing gearing it is still finding opportunities and adding to existing holdings in the current environment, despite concerns over expensive valuations.
“Everything is cheap as we define it within the context of the global sector,” he explained. “Everything I buy has an earnings growth upside.” 
Huysinga said the companies he invests in have the potential for strong earnings growth upwards of 20 per cent. The portfolio contains around 80 names, according to the manager, and is “completely bottom-up”.
However, the manager said he has “struggled to find lots of overwhelming value in North America” currently but continues to own significant holdings in the UK and Europe as well as being “well represented” in Japan.
He added: “In emerging markets there is around 12 per cent of the universe, we only have 6 per cent. Although that has been going up recently.”
Huysinga said bond proxies have seen ever stronger returns as investors with lower risk tolerance have sought out better income opportunities in the equities sector, as the low rate environment has continued.
The manager said he did not believe current bond pricing would prevail, adding: “I think the bond market will weaken and have an impact on bond proxies that will extend to big consumer companies like Coca-Cola, Pepsi and even Exxon.”
More recently performance of the trust was hit by stock selection in the healthcare and retail sectors, two of the fund’s largest sector positions, representing more than 10 per cent of the portfolio each.
“Retail is really interesting and a big area for us, it’s about 10 per cent of the portfolio and 4-5 per cent of the benchmark,” he said.
One retail company the manager owns is US car parts company O’Reilly Auto Parts, which he said has “excellent management and no debt” and is often held up as an example of the type of company set to be squeezed out of the market by Amazon.
However, Huysinga said it would be hard for the online retail giant to make the same inroads to auto parts industry that it has made in books, food and fashion.
Other stocks the manager favours include UK online fashion retailer ASOS and Russia’s largest retailer Magnit.
He said the Russian retail market has “enormous scope” for consolidation and would have a “powerful effect on Magnit’s share price”.
Elsewhere, the healthcare sector has been a source of underperformance for the portfolio, but the manager remains positive on holdings such as cystic fibrosis specialist Vertex and pharma giant Shire.
Huysinga said he has seen several opportunities to add existing holdings and to pick up new companies also.
One such example is Pioneer Natural Resources, a top 10 holding for the fund which he has added to more recently. The manager said companies operating in the Permian basin in Texas had been affected by the resilience – and abundance – of shale oil & gas assets.
A lack of demand and low economic growth have had a significant impact on oil prices in recent years, sending prices lower and affecting the earnings potential for producers.
However, the manager said Pioneer has an “enormous amount of upside” given its cashflow position and long-term prospects.
Another holding is Russian bank Sberbank. The Russian banking sector were among the first targets of sanctions imposed on the country by Western countries following its annexation of Crimea during the Ukraine crisis.
He said: “It’s very much the leading bank in Russia and due a little bit of a recovery. It has a ROE well into the 20s and is very cheap and very well run; it’s incredibly cheap relative to global banks.”
Since Huysinga took over the trust it has returned 235.33 per cent compared with a return of 151.85 per cent for the average IT Global Equity Income trust and a 138.87 per cent rise in the MSCI AC World index.
Performance of trust vs sector & benchmark since September 2008
Source: FE Analytics
According to the firm, the trust has an ongoing charges figure of 0.64 per cent and carries a performance fee of 15 per cent of the difference between the net asset value total return and the total return of the benchmark in sterling terms - although the maximum performance fee is capped at 0.8 per cent of the published net assets.