JPMorgan Hedged Equity Fund 2 and 3 offer investors a transparent well-defined strategy. Its experienced team and reasonable fees earn the strategy a Morningstar Analyst Rating of Silver for its cheapest share classes, while more-expensive share classes are rated Bronze and Neutral.
JPMorgan launched Hedged Equity Funds 2 and 3 shortly before soft-closing the original Hedged Equity fund in March 2021. They have the same objective of providing smoother returns by tempering downside and upside returns via a systematically implemented options strategy. The newer funds follow the same approach of the original Hedged Equity strategy, however, instead of purchasing options on the last business day of the quarter, Hedged Equity Fund 2 purchases three-month options on the last business day in January, April, July, and October, and Fund 3 trades its options on the last business day of February, May, August, and November. The team purchases put options 5% below the S&P 500’s value. To offset the cost of the put option, the team first sells put options 20% out-of-the-money. This structure should generally protect the fund from three-month losses in the 5%-20% range; if markets fall less than 5%, the fund should fall in line with the market, and if the market falls more than 20%, the fund should incur the same incremental losses beyond negative 5%. The team also sells call options to generate enough option premium income to cover the remaining cost of the hedges.
Hamilton Reiner runs the show here. The lead manager and architect of the strategy joined JPMorgan in 2009 and has more than three decades of equity and options trading experience. He is supported by comanager Raffaele Zingone and 24 JPMorgan equity analysts who implement the low-tracking error equity portfolio the options are built around.
Over the short term, the return profile of Fund 2 and 3 may vary from the original Hedged Equity fund depending on the price path of the S&P 500, but over the long run all three funds should have very similar risk/reward characteristics. Investors looking to make an allocation to this strategy would be wise to pair both Hedged Equity Fund 2 and 3 as this lowers market price path dependency, or the investment’s sensitivity to short periods of market volatility. Reasonable fees coupled with JPMorgan’s transparent process make these funds a strong option to help investors remain invested during challenging markets.