High-quality defensive investment trusts for volatile markets

Professional investor Katy Thorneycroft chooses three top investment trusts to buy as the markets reprice in the face of lowered economic growth prospects.

A professional investor tells us where she'd put her money. This week: Katy Thorneycroft of the JP Morgan Elect Managed Growth fund chooses three top trusts.

A sombre mood has gripped markets in the closing weeks of the year. January's optimism faded long ago and now, as investors have begun to reassess economic growth prospects and reprice equities accordingly, risk appetite has come under attack from all sides.

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The economic outlook is reasonable, however, and we think the risk of recession in the next 12 months remains quite low. Nevertheless, global growth, which rose unusually strongly last year and in early 2018, is reverting to trend more quickly than expected.

US monetary policy continues to tighten, and ongoing bellicose trade rhetoric has unnerved investors. Given this backdrop, global markets are likely to be more susceptible to shocks over the next few months.

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Taking this into consideration, we have been reducing risk in our multi-asset portfolios. However, when it comes to equities we still favour the US. The US has led throughout this cycle and in weak markets this autumn failed to outperform, but we believe its earnings resilience is superior and will bolster world equities over 2019.

JP Morgan Elect Managed Growth aims for long-term capital growth from a portfolio invested in funds run by JP Morgan and other managers. The three investment trusts highlighted below illustrate our preference for weighting our portfolio towards higher-quality assets.

Fast growers in America

US large-cap equities remain a core portfolio holding. Not only do we think that the region's profitability is superior, but the US also presents a "defensive index" compared with other major regional equity markets during periods of global stress. JPM American Investment Trust (LSE: JAM) is focused on high-quality US growth companies that, by and large, are in reasonably good shape. Trade disputes, Federal Reserve interest-rate policy and the tightening US labour market are likely to keep causing market jitters. But we expect this trust's tilt towards high-quality names will help it cope with this scenario.

Blue-chip income in the UK

In the UK uncertainty over Brexit is building as we draw nearer the March 2019 leave date. With its risk-controlled approach to portfolio construction, the JPM Claverhouse Investment Trust (LSE: JCH) has the ability to navigate the political noise with a consistent investment philosophy: it opts for income-generating British companies that provide consistent and growing dividends year over year.

The trust has adopted a more defensive stance recently, reducing gearing from 14% at the end of the first quarter to 2% in December 2018. At the same time it has reduced its cyclical mid-cap exposure in favour of more defensive FTSE 100 stocks with a higher proportion of overseas earnings.

Solid bets in Europe

The JPM European Investment Trust (LSE: JETG) provides exposure to companies from across continental Europe, with an emphasis on lower-risk, dependable performers. The trust currently has a slight defensive tilt with pharmaceuticals being the largest overweight, as well as having smaller overweights for utilities and energy and underweights for materials, semiconductors and capital goods.




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