JPM Europe Dynamic’s strengths lie in its stable and effective team that is well-supported by a far-reaching organization, while the investment process does not stand out in our view.
The quantitatively driven model underpinning this offering has been in place since 2000. Team head Jon Ingram has been responsible here since 2007 alongside comanager John Baker; Blake Crawford was named as an additional comanager in April 2019. Along with them, Alex Whyte and Victoria Helvert are also part of the Dynamic team headed by Ingram, which is part of the wider international-equity group at JPM Asset Management. They sit alongside the research and implementation teams, working closely with them to execute the approach. The global analyst bank, whose bottom-up stock research provides deeper insights and fundamental analysis, is also a positive.
This stable team is well-versed in the process, which attempts to combine quantitative research and fundamental analysis to target relatively cheaper, higher-quality stocks with an improving business outlook. A quantitative model screens the most liquid 60% stocks in Europe. Daily meetings are then held by the team to review the model’s output and cover company updates, published earnings changes, adjustments to estimates, and other relevant news flow around which analysts may carry out further research. The best stock ideas that display positive quality and momentum factors, while also being deemed as attractively valued relative to the market and peers, are combined to build a core portfolio. New positions are initiated on companies displaying positive earnings momentum. This leads to a high portfolio turnover of around 150% per year. Internal risk systems are dynamic, helping to provide a good handle on positioning, style, and active risk contributions.
Over the current management team's tenure, performance is ahead of the MSCI Europe Index and Europe large-cap blend equity Morningstar Category average. However, the strategy tends to be riskier than peers, and its outperformance has been uneven. It lagged the market four calendar years in a row up to the end of 2019, which was its worst consecutive run. The process ultimately hinges on the persistence of factor premiums: When value and especially momentum are out of favor, the strategy struggles to keep up with the broader market. This works both ways, though, as factor exposures represented a tailwind in 2020–22. Overall, the strategy is expected to deliver positive outcome in stable market environments, where earnings and price momentum are driving returns, regardless of the trend direction. On the other hand, similar to many quantitative approaches, inflection points and rapidly changing market conditions may prove challenging to navigate.