There are two broad categories of active fund manager. Those with a 'top-down' strategy take a view on the wider economic environment and select companies operating within the sectors or geographical areas they feel will perform best. Managers with a 'bottom-up' approach focus on the prospects for individual companies, placing less emphasis on their outlook for the economy.
John Baker, Jonathan Ingram and Blake Crawford, managers of the JPMorgan UK Dynamic Fund, employ a bottom-up approach. Their investment process is based on the premise that investors are often overconfident, causing them to be either overly optimistic or overly pessimistic on a stock's future, causing share prices to either over or undervalue the underlying company. The managers aim to exploit this by targeting fundamentally sound companies which they feel other investors have unduly undervalued. They specifically target profitable businesses with sustainable earnings and management teams that are disciplined with their capital expenditure. They believe management that seek to grow a firm beyond its optimum size often lose focus on shareholder returns.
John Baker and Jonathan Ingram have managed the fund since March 2007 with Blake Crawford joining the team in August 2013. Since 2007, performance has been mixed with the fund underperforming both the index and the peer group until mid-2012, which our analysis attributes to poor stock selection. Since then, stock selection has improved and the fund has recovered the early underperformance to return 5.3%* more than the FTSE All Share Index and 9.5% more than the IA UK All Companies sector over the managers' tenure. Although please remember past performance is not a guide to future returns.
Performance of the JPMorgan UK Dynamic Fund
Past performance is not a guide to future returns. * Lipper IM to 02/03/15
|Annual percentage growth|
| Mar 10 -
| Mar 11 -
| Mar 12 -
| Mar 13 -
| Mar 14 -
|JPMorgan UK Dynamic||21.99%||0.58%||16.17%||23.23%||6.28%|
|FTSE All Share||14.83%||3.42%||13.26%||11.2%||7.15%|
|IA UK All Companies||18.54%||0.76%||13.9%||17.71%||5.35%|
A number of stocks have contributed to the fund's recent outperformance. The share price of UK car retailer Lookers has appreciated on the back of impressive car sales driven by pent-up demand following the recession. In addition, lower petrol prices, a result of the fall in the oil price; and attractive financing, a result of low interest rates, is making car ownership more affordable.
Construction rental equipment provider, Ashtead, has also positively contributed to returns. The US accounts for 80% of the firm's revenue and as the economy recovers, demand for construction equipment has been rising, with a preference for rental over ownership as it provides greater flexibility.
In recent months, the managers have been increasing the fund's exposure to travel & leisure companies such as easyJet and International Consolidated Airlines Group. In their view, these companies offer superior growth potential, aided by lower fuel costs, strong forward bookings and reduced numbers of empty seats.
Our view on this fund
While the fund's performance has been strong since mid-2012, it has previously been lacklustre under the current managers’ tenure. The fund has the ability to invest in higher-risk smaller and medium-sized companies and will also move relatively aggressively between stocks and sectors, which means it tends to be more volatile than the average fund in the sector. We would prefer to see a sustained period of improvement in the managers' stock picking before considering the fund for inclusion on the Wealth 150 list of our favourite funds across the major sectors.