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By Jeff Holt, CFA | 06-25-2015 10:00 AM

Lester: Looking to Europe for Yield

Still in the early innings of a recovery, European stocks are attractive from a valuation and growth perspective, plus the market's dividend payers are more diversified and generous than in the U.S., says J.P. Morgan's Anne Lester.

Jeff Holt: Hi, I 'm Jeff Holt, analyst with Morningstar manager research. Today, I'm joined by Anne Lester, global head of retirement solutions and portfolio manager for J.P. Morgan Asset Management. Today, we are here to discuss JPMorgan Income Builder (JNBCX), one of the strategies that she comanages.

Anne, based on its holdings, JPMorgan Income Builder falls in the conservative-allocation category. But as its name alludes to, it has a very distinct objective. Can you describe that objective, and how you strive to meet that objective?

Anne Lester: Well, our first objective is generating yield, and we have a very diversified overall pool of things to pick from. But we really try to keep the overall risk of the portfolio in line with a 60-40 stock/bond portfolio or lower. But beyond that, we go anywhere in an effort to try to maximize the yield we can find, always keeping that risk budget in mind.

Holt: Your portfolio can hold a lot of equities--as much as 50% in equities. Right now, it's around 40% in equities. One area you follow within equities has been European equities--you have a dedicated sleeve to that area. What's driving that interest in European equities?

Lester: We believe that Europe is several years behind the U.S. in terms of its economic recovery out of the financial crisis. The ECB is still aggressively doing QE; we've obviously stopped that and are now in the path--we think this year, probably--to raising interest rates. So, from a valuation perspective, we think that Europe is an attractive market. From a growth perspective, we think Europe is attractive. And very importantly, from a broad-market characteristic, European stocks have always historically paid higher dividends than the U.S. market does. And those dividends are more broadly diversified by sector than the U.S.

So, in U.S. stocks, if you want to yield portfolio, you're really stuck in couple of sectors. In Europe, you can get very diversified. Those are all reasons we like the market. And then, in particular, we really like the [portfolio manager] on the strategy that we are using; he's just done a terrific job and has a great eye for yield, but also growth. So, we are getting a great set of ideas from him in the portfolio.

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