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Would Investing in JPMNX Hamper or Benefit Your Portfolio?

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Nov. 20 2020, Updated 1:21 p.m. ET

Risk-adjusted return

Alternative mutual funds use hedge fund strategies for generating risk-adjusted returns for their investors. The JPMorgan Research Market Neutral Fund Institutional Class (JPMNX) seeks to neutralize the stock market risks of its portfolio’s holdings while maintaining its profit-making ability.

The fund’s top holdings include Avago Technologies (AVGO), Lam Research Corporation (LRCX), Verizon Communication (VZ), and Johnson & Johnson (JNJ), among others. The graph below compares the return performance of a combined portfolio consisting 30% of JPMNX and 70% of the S&P 500 with the return performance of the S&P 500 (VFINX) index itself during 2015.

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Reduced returns

The performance of the S&P 500 index, as the graph shows, performed better than the combined portfolio, which was affected by the poor returns of JPMNX in 2015, even though both gave negative returns to its investors during the time period. The 2015 returns of the S&P 500 index came in at -0.8%, whereas that of the combined portfolio comes out to be 2.2%.

Conclusion

The JPMorgan Research Market Neutral Fund Institutional Class (JPMNX) is an alternative mutual fund that seeks to build a low-volatility portfolio by using a popular “market neutral” hedge fund strategy. The fund takes a long position in securities that its management believes to be undervalued and takes short positions on securities that its management believes to be overvalued.

Alternative mutual funds also make use of other popular hedge fund strategies, such as long or short equity, merger arbitrage, and distressed debt, among others, in order to give retail investors access to a range of approaches. Such funds also let you have exposure to gold and gold-related funds including the Vanguard Precious Metals and Mining Fund Investor Shares (VGPMX).

To learn more about VGPMX, check out Market Realist’s series What You Should Know about Alternative Precious Metal Fund VGPMX.

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