JPMorgan US Value Equity Off-shore Fund is an offshore feeder fund showing its conviction towards investing in U.S. economy vide the underlying parent fund, JPMorgan Funds - US Value Fund.

Summary

Type	An Open-ended Fund of Fund scheme	Benchmark Index	Russel 1000 Value Index (Total Return Net of 30% withholding tax)
Min. Investment: Additional purchase:	For lump sum -> Rs 5,000 and in multiples of Re 1 thereafter For Systematic Investment Plan (SIP) -> Rs 1,000 for monthly SIP Option where aggregate cheque/ payment instructions shall not be less that Rs 6,000 (i.e. minimum 6 instalments in case of monthly or quarterly SIP) Rs 1,000 and in multiples of Re 1 thereafter	Exit Load:	1.0% if exited within 18 months from the date of allotment of units and 'nil' if exited beyond 18 months from the date of allotment.
Entry Load	Nil	Face Value	Rs 10 per unit
Issue Opens	July 17, 2013	Issue Closes:	July 31, 2013

 

Investment Objective*

The primary investment objective of the scheme is "to seek to provide long term capital growth by investing predominantly in the JPMorgan Funds - US Value Fund, an equity fund which invests primarily in a value style biased portfolio of US companies. 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?

The JPMorgan US Value Equity Off-shore Fund (JUVEOF) being an overseas fund of funds scheme is positioned to take advantage of investments in world's largest economy, the United States of America (U.S.), by investing in units of the underlying fund - "JPMorgan Funds - US Value Fund (JF-UVF) known as the underlying parent fund."

As mentioned earlier, the primary investment objective of the Scheme is to seek to provide long-term capital growth by investing predominantly in JF-UVF, which is an equity fund investing primarily in a value style biased portfolio of U.S. companies. So, JUVEOF is in the nature of a feeder fund. And thus by its nature, the fund although it offers geographical diversification, it also has exposure to broadly the following risks associated with single country investing:
 

• Economic risk;
• Currency risk; and
• Political risk
   

Portfolio & Investment Strategy

It is noteworthy that JUVEOF while striving to achieve its investment objective will invest in:
 

• Units of the underlying fund;
• Money market instruments (including commercial papers, commercial bills, treasury bill, GoI Securities having an unexpired maturity up to one year, Certificate of Deposits amongst host of other debt instruments);
• Units of liquid funds; and
• Any other securities/asset class/instruments as permitted under the Securities and Exchange Board of India (SEBI) Regulations But shall not invest directly in foreign securitized debt and engage in stock lending & borrowing and short selling.
   

Under normal circumstances the asset allocation pattern mandated on the fund is as under:

 

Instruments	Allocation Range (%)		Risk Profile High/Medium/Low
	Minimum	Maximum
Shares of the underlying fund i.e. JPMorgan Funds - US Value Fund	95	100	High
Debt instruments including Government securities and corporate debt	0	5	Low to Medium

(Source: Scheme Information Document)  

It is noteworthy that the underlying parent fund (i.e. JF-UVF) while striving to meet its investment objective of long-term capital growth by investing in a value style biased portfolio of U.S. companies; will hold at least 67% of its assets in a value style biased portfolio of equity securities of companies that are domiciled in, or carrying out the main part of their economic activity in the U.S. and may invest even in Canadian companies.

The underlying parent fund follows a bottom-up approach to stock picking and looks for quality companies which are trading at a discount to their intrinsic value. It is noteworthy that for JF-UVF stock selection is paramount in their endeavour to create alpha, as against sector selection. The investment philosophy of JF-UVF is founded on the belief that companies which possess the ability to consistently generate free cash flow and effectively allocate capital to generate growth in value per share, will over the long term, outperform stock market averages.

  Performance in U.S. $ terms

Particulars	1 year (%)	3 years (%)	5 years (%)	7 years (%)	Since Incep* (%)
JPMorgan Funds - US Value Fund	30.07	17.11	5.43	5.91	7.35
Russell 1000 Value Index (Total Return Net)	31.72	15.74	3.89	3.97	5.89

Returns computed as May 31, 2013; inception date is September 1, 2004.
(Source: SID)   Performance in Indian rupee terms

Particulars	1 year (%)	3 years (%)	5 years (%)	7 years (%)	Since Incep* (%)
JPMorgan Funds - US Value Fund	30.38	25.08	11.62	8.97	9.81
Russell 1000 Value Index (Total Return Net)	32.49	23.61	10.00	6.96	8.31

Returns computed as May 31, 2013; inception date is September 1, 2004.
(Source: SID)  

The performance tables above reveal that as on the aforesaid date, barring on a 1 year time horizon, JF-UVF over the long-term has been successful in creating alpha for its investors. So the returns per se seem quite decent. But one should not rule out the following risks which would be inherent.

 

• Currency risk: As the underlying scheme will invest in securities which are denominated in foreign currencies (here the U.S. Dollars), fluctuations in the exchange rates of these foreign currencies may have an impact on the income and value of the scheme.
   
• Country risk: Since the fund is an overseas feeder fund investing mainly in the United States of America, JUVEOF's performance will closely knit to the economic, political and social risks arising in the U.S.
   

Fund Manager Profile

The fund's investments will be managed by Mr Namdev Chogule who has approximately 11 years of experience in the financial services sector as dealer, analyst and fund manager for several leading mutual funds and banks. Prior to joining JPMorgan Asset Management India Private Limited, Mr. Chougule worked for a year as a fixed income fund manager with Lotus India Asset Management Company Private Limited and around 6 months as a fixed income analyst with JM Financial Asset Management Company Limited. He has to his credit a bachelor's degree in Engineering [B.E. (Elect.)] and also holds a Masters in Management Studies degree in finance [MMS (Finance)] along with a CFA charter.

Mr Chougule also manages the JPMorgan Greater China Equity Off-shore Fund, JPMorgan Emerging Europe, Middle East & Africa Equity Off-shore Fund, JPMorgan ASEAN Equity Off-shore Fund, JPMorgan India Liquid Fund, JPMorgan India Treasury Fund, JPMorgan India Active Bond Fund, JPMorgan India Capital Protection Oriented Fund, JPMorgan India Short Term Income Fund, JPMorgan India Fixed Maturity Plans, JPMorgan India Hybrid Fund Series and JPMorgan India Income Fund Series.

 

Fund Outlook

JUVEOF being a feeder fund, its performance will be closely linked to the performance of the parent fund JF-UVF. Though JF-UVF has performed well over the long-term (as seen above) when compared to its benchmark Russell 1000 Value Index (Total Return Net), its performance going forward will depend on the economic, social and political developments taking place in the U.S. and also the currency movement. At present the U.S. economy is witnessing some signs of economic vigour and unemployment rate too has come down from 9.0% levels seen last year. Housing index too has seen an ascending trend signifying a recovery from the U.S. sub-prime mortgage crisis of 2008. Thus amid these positive numbers, Consumer confidence Index too has elevated this year (i.e. 2013). The easy monetary policy adopted by the U.S. Federal Reserve facilitated by bond-buying worth U.S. $85 billion per month has been conducive for the U.S. macro-economic environment and now a clarification from U.S. Federal Reserve Chairman, Mr Ben Bernanke - that the U.S. central bank might not roll back its stimulus programme earlier than expected - has infused positive sentiments in the market (as easy monetary policy adopted by the U.S. Federal Reserve is expected to continue). So, there seem to be "Bernanke bounce" in the markets. But one needs to ascertain the sustenance of optimistic mood once the U.S. Federal winds down quantitative easing. Moreover, the country's debt-to-GDP ratio has been on a rising trend since more than a decade now which is cause of concern as it poses the country to risk of default on its debt obligation which in turn may cause widespread pessimism across the global markets.

 

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