By Robert Maharajh JP Morgan is set to launch a fund which will invest in financial stocks worldwid...
By Robert Maharajh
JP Morgan is set to launch a fund which will invest in financial stocks worldwide. The portfolio will follow the analyst-driven style of the company's other sector funds, Teletech and Pharmatech.
The JP Morgan Global Financials Equity fund will be Luxembourg domiciled. The minimum investment is $50,000. Stock selection will be based on JP Morgan's established process. Portfolio manager Alistair Sayer said: "The process starts with each analyst calculating a long-term expected return for each of the stocks they cover. The local inflation rate is then stripped out and the stocks are ranked globally by their long term return. Analysts then make recommendations with a ranking that indicates their level of confidence in a stock. Based on this, our global team of analysts along with the portfolio managers, identify a combination of long term value with a short term catalyst, reflected in a high rating. The managers then put the portfolio together with regard to overall risk controls."
A number of key long term drivers make this sector attractive for investors, Sayer believes. He said: "There is increasing consolidation across the sector. M&A activity has tripled since 1996, and of particular note has been the large increase in cross-border mergers, while foreign buying of US companies has increased five-fold over the same period."
This trend of consolidation will also benefit the investment banking arms of banks which will be able to pick up increased fee business as a result, Sayer said.
Another general trend from which financials are particularly well placed to benefit is the increasing importance of technology and the internet.
Sayer said: "Technology will enable financial companies to drive down their costs. For example, if a customer walks into a bank and performs an operation, it costs the bank $1, and another $1 to confirm it by post.
"However, if that transaction is performed over the internet and confirmed electronically it costs only 10 cents. Some of the more aggressive banks now want between 20% and 30% of their clientele transacting over a cheaper interface."
Consumers are increasingly embracing personal finance services over the internet.
Sayer said: "AOL reports that in terms of millions of usage minutes personal finance was the most popular category in June 2000, ahead of news and sport."
Other long term trends identified by JP Morgan are ones set to boost the sector include the increase in retirement savings, as evidenced by the strong inflows into US mutual funds, and the growth of the high net worth sector.
Sayer said: "This area, of individuals with liquid assets of around $1m or more, is estimated at $23 trillion, and servicing it is a high return on equity business."
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An added tier of asset management can of course deliver additional benefits for certain investors, writes Graham Bentley - just be sure you can justify it to the regulator and, especially, the client