JPMorgan India Economic Resurgence Fund

An open-ended equity diversified equity fund with a focus on riding on economic cycles through a dynamic asset allocation between various stocks and sectors.

Summary

Type	An open–ended equity Scheme	Benchmark Index	S&P BSE 200
Min. Investment: Additional purchase:	Lump sum: Rs 5,000 and in multiples of Re 1 thereafter Systematic Investment Plan : Rs 1,000 (subject to minimum 6 instalments of Rs 1,000 each, and one can opt for monthly or quarterly SIP) Rs 1,000 and in multiples of Re 1 thereafter	Plans: Options (under each plan):	Direct Regular   Growth Dividend (Re-investment and Payout)
Face Value	Rs 10 per unit	Expense Ratio:	Upto 2.50%* *Direct Plan shall have a lower expense ratio to the extent of distribution expenses, commissions, etc. and no commission for distribution of Units will be paid / charged under the Direct Plan
Entry Load	Nil	Exit Load:	1.00% for redemption / switch-out of units within 18 months from the date of allotment of units Nil for redemption / switch-out beyond 18 months from the date of allotment of units
Issue Opens	January 13, 2015	Issue Closes:	January 27, 2015

*Direct Plan shall have a lower expense ratio excluding distribution expenses, commission, etc. and no commission for distribution of Units will be paid / charged under Direct Plan.  

Investment Objective*

The investment objective of the scheme is "to generate long term capital appreciation, from a diversified portfolio that is substantially constituted of equity and equity related securities of companies with focus on riding economic cycles through dynamic allocation between various sectors and stocks at different stages of economic activity. However, there can be no assurance that the investment objective of the Scheme will be realised."

*Source: Scheme Information Document

 

Is this fund for you?

JPMorgan India Economic Resurgence Fund (JIERF) is positioned as an open-ended equity diversified equity fund with a focus on riding on economic cycles through a dynamic asset allocation between various stocks and sectors at different stages of the economic cycle. You see, a full economic cycle comprises of stages of expansion and contraction in economic activity. Typically during an expansion stage, the economy witnesses increase in economic activity; while during a contraction stage, the pace of economic activity slows down. And mind you, during such times, sector performance across the cycles is not homogeneous. It varies with different sectors providing true representation of the economic situation at different points of the cycle. Hence as a result, different sectors assume market relationship across different economic phases.

JIERF aims to identify economic trends and investing in the sectors and stocks that are likely to outperform at any given stage of cycle in the economy. Thus during an expansion phase JIERF may eye cyclical stocks (as they tend to outperform the broader market during expansionary phase), while in a contraction look at sectors (which usually are less sensitive to changes in overall economic activity).

But amid times when the trail P/E of the Indian equity market is markets is hovering over 21x – a stretched level – and the market have scaled an all-time high recently, the margin of safety seems to have narrowed. This will expose investors to very high risk, since portfolio construction would be a challenging task. Hence before investing one's hard earned money, it would be imperative to take into account his / her risk appetite and risk tolerance.

 

Portfolio Strategy

JIERF would aim to deploy the stages of economic cycle approach to investing. Economic trends will be identified to select sectors and stocks that are likely to outperform at any given stage of cycle in the economy. Thus given that, it appears that JIERF would follow a first a top-down approach and then a bottom-up approach to investing.

During the expansion phase, JIERF would aim to predominantly invest in stocks of companies in the cyclical sectors as they tend to outperform the broader market during expansionary phase due to increased investment and manufacturing activity leading to higher GDP growth. So, for example, given the new Government’s focus on building highways, there is likely to be flurry of awards in the roads sector and major beneficiaries among others would be companies in construction, cement sectors. To take advantage of such events, the fund is likely to be overweight on construction and cement sectors. Similarly, during period of contraction the fund would look to invest in defensive sectors stocks or sectors such as Pharmaceuticals, Consumers and IT Services that are less sensitive to changes in overall economic activity, but not limited to them.

Under normal market conditions and depending on the fund manager’s views, JIERF intends to invest in a portfolio of stocks that are likely to benefit from the Government spending and implementation of economic reforms.

Thus JIERF will invest across stocks of companies that represent a broad range of sectors of the economy and companies in sectors that will benefit from the on-going reforms in the Indian economy. Economic reforms here, refers to a set of economic, financial and various other sector policy initiatives that lay down progressive framework for trade and investments in India. And such reforms could be in the form of liberalisation, privatization, investment support to areas like infrastructure, power, employment generation, etc. which are directed at clocking long economic growth for India.

The sectors that JIERF will broadly focus on would be Infrastructure, Power, Construction, Banking & Finance, Telecom, Oil & Gas, Media, Fertilizers, Travel & Tourism, Cement, Engineering, Metals and Auto. Investments will be pursued in selected sectors based on the investment team’s analysis of regulatory reforms, business cycles and competitive advantage amongst host of other factors.

As far as stock selection is concerned, JIERF will focus on the following:

• Fundamentals of the business;
• The industry structure;
• The quality of management;
• The financial strength of the company;
• The key earning drivers; and
• Sensitivity to economic factors
   

Also, a noteworthy point is JIERF while investing will not have bias towards any specific sector or market capitalisation.

The asset allocation which will be followed by the fund will be as under:
 

Instruments	Allocation Range (%)		Risk Profile High/Medium/Low
	Minimum	Maximum
Equity & equity related securities*	80	100	High
Debt and money market instruments	0	20	Low to Medium

*Includes investment in equity and equity related securities of companies with a focus on riding economic cycles; including derivatives traded on the Futures and Options segment of Indian stock exchanges not exceeding 50% of the net assets of the Scheme.

Likewise, the Scheme shall not invest in stock lending, securitized debt, short selling and repo in corporate debt. The Scheme shall not invest in offshore securities, ADRs and GDRs. Though the Scheme may invest in IDR (Indian Depository Receipt) listed on the stock exchange of India.

(Source: Scheme Information Document)  

JIERF will benchmark its performance to the S&P BSE 200 Index, since it is line with the investment objective of the scheme and this reflects the primary universe of stocks from where the portfolio would be constructed by the fund managers.

 

Fund Manager Profile

JIERF will be managed by the duo – Harshad Patwardhan and Karan Sikka

Mr Harshad Patwardhan is the Head of Equity at JPMorgan Mutual Fund. He has around 19 years of experience in the equity market and prior to joining JPMorgan Mutual Fund, has worked with Deutsche Equities India Private Limited as a senior research analyst and has extensive experience with several foreign brokerage houses covering a variety of sectors. Mr Patwardhan has to his credit a degree in technology from IIT - B.Tech (IIT), MBA (from IIM) and holds a CFA Charter.

At JPMorgan Mutual Fund, Mr Patwardhan manages JPMorgan India Equity Fund, JPMorgan India Mid and Small Cap Fund, JPMorgan India Tax Advantage Fund and JPMorgan India Top 100 Fund.

Mr Karan Sikka is the Associate Fund Manager for Equity at JPMorgan Mutual Fund. He has a total work experience of 12 years and prior to joining JPMorgan in December 2004, has worked in Investment Banking Research on ECM and CB desk. Mr Sikka has also worked with Principal Asset Management and ICICI Bank earlier in his career. Mr Sikka holds a Post-Graduate Diploma in International Business from Delhi University, is a Chartered Accountant (CA) and is a CFA Charter holder.

At JPMorgan Mutual Fund, Mr Sikka co-manages JPMorgan India Tax Advantage Fund with Mr Patwardhan and is also a fund manager for JPMorgan India Equity Income Fund (Equity Portion) and JPMorgan India Hybrid Fund Series.

 

Fund Outlook

As JIERF aims deploy stages of economic cycle approach to investing by identifying such economic trends and investing in the sectors and stocks that are likely to outperform at any given stage of the economic cycle, the fortune of the fund would be closely hinged to the how successfully the investment team identify opportunities while riding on India’s economic resurgence.

As mentioned earlier, the launch of JIERF has come at a time when the Indian equity market have scaled an all-time high and valuations seem stretched, with the trail P/E of the market hovering over 21x. During such times filled with exuberance constructing a portfolio would be challenging task.

 

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