The advantage of the approach is that it is proven historically to deliver less volatility in the market with less exposure to downside risk and this may be attractive to those looking to invest in the US.
Investing in the US is very tricky and few managers outperform the index. In 2014 only 20% of active managers achieved this. Listening to the portfolio manager of the JPMorgan (JPM) US Equity Income Fund express this made me think that perhaps this was a hidden gem.
The fund was launched in the US 10 years ago and in the UK seven years ago. The portfolio manager went on to explain that to outperform the index a fund manager has to be a good stock picker. So the question is, if the portfolio manager is so keen to highlight the difficulties of investing in the market and that stock picking is the key to success how well have they performed.
Since launch in 2008 the S&P 500 has returned 164.23%, the fund has returned 151.33%. Over five years the performance is almost identical and volatility the same. Effectively the fund seems to track the index, and the manager’s argument that good stock picking wins the day doesn’t appear to apply to them.
However, before we discount the fund it is worth considering that the last five years have been unusual for investing.
The S&P as a whole appears to be fair to fully valued. Many would argue that what has happened in the past is unlikely to repeat and therefore the only way logically to outperform the index is through active management. If we agree with this argument then it is worth considering this fund.