‘I get market returns, plus a little extra’

Lower returns have put attention firmly on cost, and so-called “closet trackers” – supposedly actively managed funds that give passive-like performance – are, thankfully, being purged from investors’ portfolios. A fund, then, offering returns that move in line with the market but with “a little extra added on top” might well be met with scepticism. That, however, is the pledge of the JPMorgan UK Core Equity fund, managed by a team headed by James Illsley.

His fund has been delivering on its claims. It has returned 73pc after fees in five years, against 68pc for Vanguard FTSE UK All Share Index, a popular tracker fund.

The JPMorgan fund’s fees are still above those of tracker funds, which can charge as little as 0.06pc, but are notably below other active funds. Its ongoing charge is just 0.4pc.

“We’ll never see a blowout year that puts us at the top of the charts, but it’s more about delivering consistent gains above the index that really add up,” Mr Illsley tells me.

The aim is to give investors the reassurance they will not badly trail the market that trackers provide, combined with the possibility of outperformance on top.

Here he explains how the fund is put together.

The FTSE All Share is the starting point. We want consistent outperformance over rolling threeyear periods and, in time, that can add up to powerful gains above the index.

The fund is supposed to be low-risk versus the index and a core holding for investors.

There are about 150 stocks in the fund and, given the link to the index, turnover is relatively low.

We make use of mutual funds, too. We hold the JPMorgan UK Smaller Companies fund, for example, to help keep us in line with the index. We are very risk disciplined and are looking to take small overweight or underweight positions on stocks. We can move away from index weightings by about 25pc, so a stock that makes up 1pc of the index can be 1.25pc of our fund.

Most of the risk in the fund is at the stock level – we are not taking big calls on which sectors will do well or badly. It’s more about deciding between companies in the same sector.

For example, within housebuilders, we like those that are less exposed to London, such as Bellway and Bovis. Yes, we halved our overweight position in real estate, housing and retail but kept a modest pro-cyclical positioning. After the vote we took action to take the remainder of the risk off the table, reduced housebuilders significantly, took more out of real estate and reduced exposure to retail.

We had materially reduced exposure to UK banks in the runup to Brexit and we’ve moved into international areas like beverages and pharmaceuticals.

This portfolio is unapologetic in its aim for consistent returns and reasonable value, says Ed Monk

Currency weakness has certainly helped. Only 30pc of FTSE 100 revenues come from the UK, so those sales are automatically boosted when they’re converted into sterling.

Valuations on some large companies – the “bond proxies” in particular – are very high and we own British American Tobacco, Imperial and Reckitt Benckiser.

Will it continue? It’s really a question about monetary policy and people have been trying to call a turnaround for years. Melrose Industries is a listed company that works like a private equity house. It is a turnaround specialist that looks for underperforming industrial assets and returns them to the stock market. We also like Micro Focus, the software company. It helps companies update their legacy systems, which isn’t very fashionable, but the company is about to enter the FTSE 100.