JPMorgan International Hedged Equity offers investors a transparent well-defined strategy that will help them remain invested during challenging markets. 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.
Like the U.S.-based JPMorgan Hedged Equity fund JHEQX, this strategy aims to provide smoother equity returns by tempering downside and upside returns via a systematically implemented options strategy. Every third Friday of the last month of each quarter, the team purchases MSCI EAFE Index put options 5% below the MSCI EAFE Index’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 quarterly 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 Piera Elisa Grassi and a deep bench of equity analysts who implement the low-tracking-error equity portfolio the options are built around.
The international fund has not seen the same stratospheric growth in assets as its S&P 500-based counterpart. This likely owes to the fund’s shorter history, domestic market bias in some investor’s portfolios, and potentially the blemish on the international fund’s track record when its short put options leg expired in-the-money. Though the process is similar for the two strategies, each overlay applies to a different index, accounting for some performance divergence. However the same investment philosophy holds. For example, the fund’s Institutional shares have lost only 11.5% in 2022 through August compared with the MSCI EAFE's 21.7% decline. The strategy implements the same investment thesis and charges the same fees as the S&P focused fund, making it an interesting option for investors seeking to risk manage global markets.