FOR PROFESSIONAL INVESTORS ONLY, NOT FOR PUBLIC DISTRIBUTION
JPMorgan Investment Fund Europe Strategic Dividend
JPM Europe Strategic Dividend Fund
Investment Team
Geometric excess returns (as at 31/12/11)
5%
Behavioural Finance Process:
4.5%
5%
4%

Portfolio Manager: Michael Barakos

Team: 38 people
4%
3%
2.7%
3%
2.4%
2.5%
2%
Key Characteristics
2%

Benchmark:
MSCI Europe

Target No. of holdings:

Expected alpha:

Expected tracking error:

Market capitalisation:
multi-cap

Total strategy assets:
Euro 520m
250 – 450
1%
1%
0%
1 year
3 years (p.a)
5 years (p.a)
Since inc.
(p.a.)*
Fund
-5.6
15.3
-2.6
4.2
Bmark
-8.1
10.4
-4.9
1.7
1
1
1
1
Outperform benchmark
6% - 8% p.a
Qtle rank
Source: J.P. Morgan. Figures in EUR, gross of fees vs MSCI Europe, to 31/12/11. * Inception
date is 24 Feb 2005. Quartile ranking is since 28/5/05 to 31/12/11 vs the morningstar large cap
value universe.
Q: What is style investing & why does it work?
What is style investing?

Traditional investing: Focus on adding return through stock picking

Style investing: Focus on adding value through style exposure
Why does style investing work ?

Due to biases that investors make when investing

Markets clearly and consistently reward certain attributes, whilst clearly and consistently punishing others over
the long term

Key is to identify and exploit specific style characteristics in a disciplined & systematic way
A: Returns generated from disciplined style exposure not stock specific exposures
2
Returns to a Dividend strategy
Compound return for dividend yield stocks*
Returns % p.a.
13.5%
10.8%
7.5%
7.3%
4.1%
1.5%
1
Highest
4
3
2
Quintiles
5
Average
Lowest
*Returns based on dividend yield ratio
Source: JPMAM; Figures are for pan-Europe. Universe is the Citigroup Broad Market Index Europe. Data from January 1990 to May 2011. Calculations are based on 12 month returns.
… excess returns from dividend investing
3
Disciplined approach to Dividend investing
Stock Universe (2000 stocks)
Income Universe

Don’t like it, don’t own it

All stocks given equally weighted active positions

Large number of stocks – no unquoted investments

Industry bets +10% vs. benchmark

Incidental country and sector risk less than 20% of
total risk

Monthly program trades
Qualitative Analysis
Sustainability / newsflow
Dividend Fund
… selecting high yielding stocks that are fundamentally sound
Stock examples
JPM Europe Strategic Dividend Strategy
Fundamentally sound
30% highest dividend yield
Scottish & Southern
5.9% dividend yield

RWE
13.2% dividend yield

Financial metric
Qualitative

Dividend cover (cash): 2.7x

Dividend cover (earn): 2.2x

Earnings revisions: +1%

Price momentum: +29%

Dividend cover (cash): 3.6x

Dividend cover (earn): 1.8x

Earnings revisions: -10%

Price momentum: -45%


Not only does the stock have
strong dividend cover but it is
also getting small earnings
upgrades due to price
increases. They are also
expected to increase the DY
by 2% more than RPI, whilst
maintaining the dividend cover.
Optically it appears that the
stock has a high yield which is
suitably covered. However the
company has announced that
it is cutting its dividend and
has recently had to raise
capital in order to pay its
dividend. This has resulted in
earnings downgrades.
Invest in strategy


Source JPMAM, Data as at 16/9/11 Dividend yield is historic yield for the last year. Earnings revisions are for the previous 3 months, price momentum is share price movement over last 12 months
relative to MSCI Europe Net Index
For illustrative purposes only – not an offer or solicitation to buy or sell the securities mentioned.
5
Style fund purity
Key style characteristics
Sustainability / newsflow
Market
Dividend Fund
Dividend yield (fwd)
4.5%
5.7%
Dividend yield (historic)
3.8%
5.1%
Low
2000 stocks
Strategic
Div. fund
~350
Forecast Dividend Payout
Dividend cover
5.0%
2.2x
2.0x
Earnings revisions
-1.9%
-1.4%
Price momentum
8.6%
8.9%
Source: J.P. Morgan Asset Management, Factset, as at 5th January 2012. Figures reported
are weighted medians.
High
High
Low
Income (DY)
… avoiding income style drift
6
8
8
7
7
6
6
5
5
4
4
3
3
2
2
1
1
0
0
Yield Spread
Fund Yield
Source: JPMAM, based on trailing dividend yield, data from Feb 2005 - December 2011, for illustrative purposes only
… the fund offers a strong yield premium to the market
7
Index Yield
Dividend yield spread (%)
Trailing dividend yield (%)
The fund consistently maintains a yield superior to the index
JPMIF Europe Strategic Dividend Fund
Performance – to 31st December 2011
Excess returns vs. MSCI Europe Net Index
5%
4.5%
5%
4%
4%
3%
2.7%
3%
2.4%
2.4%
2.5%
5 years (p.a)
Since inc. (p.a.)*
2%
2%
1%
1%
0%
1 year
2 years (p.a)
Fund
-5.6
3.5
15.3
-2.6
4.2
Benchmark
-8.1
1.1
10.4
-4.9
1.7
1
1
1
1
1
Micropal quartile
3 years (p.a)
Source: J.P. Morgan Asset Management. Gross of fees. Excess return calculated geometrically. Figures are in EUR.
* From inception on 24/02/05.
8
JPM Europe Strategic Dividend Fund
Major stock and sector contributors to returns – 12 months to 31st December 2011
Key sectors
Key stock contributors
Lloyds Banking (u), Barclays Plc (u), Unicredit S.P.A. (u),
Banks (u)
Rio Tinto Plc (u), Arcelormittal Sa (u), Anglo American (u),
Materials (u)
Siemens Ag (u), Koninklijke Philips Electronics N.V. (u),
Capital Goods (u)
Lancashire Holdings Ltd. (o), Beazley Plc (o), Mapfre (o),
Insurance (o)
Credit Suisse Group Ag (u), Deutsche Bank Ag (u)
Diversified Financials (o)
Key stock detractors
Gl Events S.A. (o), Aggreko Plc (u), Experian Plc (o)
Commercial & Prof. Serv. (o)
Immobiliare Grande Distribuzione (o),
Real Estate (o)
Arnoldo Mondadori Editore (o), Sanoma Oyj (o)
Media (o)
Pharma. & Biotech. (u)
Stock selection
Roche Holding Ag (u), Shire Plc (u)
Food, Bev. & Tobacco (u)
Asset allocation
Unilever (u), Anheuser-Busch Inbev (u)
-1.0 -0.5 0.0
Source: Factset.
0.5
%
1.0
1.5
2.0
JPM Europe Strategic Dividend Fund
Fund positioning – as at 31st December 2011
Top / bottom active sector positions
Top / bottom active stock positions
Insurance
Unilever PLC
Utilities
Telecom Italia S.p.A.
Real Estate
Boliden AB
Transportation
Aberdeen Asset Management PLC
Consumer Services
Royal UNIBREW A/S
Capital Goods
Telefonica S.A.
Food Beverage & Tobacco
BG Group PLC
Banks
Novartis AG
Materials
Siemens AG
Pharmaceuticals
Roche Holding AG
-6.0%
-3.0%
Source: J.P. Morgan Asset Management, Factset.
0.0%
3.0%
6.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
Why invest in a high dividend yield strategy?
11
Why invest in high yielding stocks?
Decomposition of nominal returns, 1970 – 2011
Change of Valuation
Dividend Growth
Performance of high yield vs. the market since 1988
Dividend Yield
100%
Return %
16
High yield
14
80%
12
60%
10
40%
8
Market
6
20%
4
0%
2
-20%
Real returns
Dividend Yield
Dividend growth
Change of Valuation
Total annualised
return
UK
US
France
Germany
Japan
4.2
6.8
-0.1
3.2
4.9
1.0
3.5
6.9
-1.1
2.8
4.8
-0.8
1.5
2.4
1.3
11.2
9.3
9.4
7.0
5.4
Source: SG Quantitative Research, The chart shows what percentage of nominal returns come
from the change in valuation, dividend growth and dividend yield. As at December 2011
… dividend yields drive equity returns
0
-2
-4
US
Europe ex
UK
UK
Japan
Asia ex
Japan
Source: SG Cross Asset Management, High yield is defined as the highest yielding 20% of the
market. Market is based on FT World Universe. August 2011.
Past performance is not a guide for the future. The capital is not guaranteed
European equity valuations are compelling vs other asset classes
Current yields vs. 10 year average
Yields across asset classes (%)
6
Europe
Equity
Yields across equities (%)
Gov Bonds
Money markets
5
5
4
4
3
3
2
2
1
1
0
0
Dividend
yield
German Bund US 10yr
yield
bond yield
Current (%)
German 3m US 3m rates
rates
10-year average (%)
Europe
US
Current (%)
Source: UBS, Bloomberg, Datastream. Right hand chart shows yields for MSCI indices in each region, data as at 31 st December 2011.
Asia ex
Japan
Japan
Emerging
Markets
10-year average (%)
Dividends have historically been less volatile than earnings
Historic EPS and DPS movements for MSCI Europe ex Financials
0
-5
-10
DPS: -8%
-15
-20
-25
-30
-35
EPS peak to trough decline
DPS: -6%
EPS: -42%
-40
DPS: -9%
EPS: -42%
DPS peak to trough decline
DPS: - 11%
EPS: -42%
EPS: -39%
DPS: -11%
EPS: -39%
-45
73
75
77
79
81
83
85
87
89
91
93
95
97
99
01
03
05
07
09
Source: Morgan Stanley as at December 2011
… dividends have historically fallen just 9% on average in recessions vs earnings down 41%
11
How much are dividends expected to decline… Is this realistic?
140
UBSe bottom-up calculated points
EStoxx 50 dividend futures
136
130
130
124
120
120
110
9%
41%
56%
113
109
100
90
92
87
80
70
2010A
2011E
2012E
Source: UBS as at December 2011
… the market is implying dividends will fall by circa 41% in 2013
2013E
2014E
Corporate strength supports dividend yields
European net debt/equity
Dividend cover Europe
70%
3.00
61%
60%
61%
55% 55%
2.50
54%
49%
48%
50%
43%
40%
40%
2.00
43%
42%
40%
1.50
Source: UBS, Based on UBS European Universe consisting of 550 companies. December 2011
… corporate strength gives us confidence dividends will be more resilient than the market thinks
2013E
2012E
2011E
2010E
2009
2008
2007
2006
2005
2004
2112E
2011E
2010
2009
2008
2007
2006
2005
0.00
2004
10%
2003
0.50
2002
20%
2001
1.00
2000
30%
2003
33%
Why invest in high yielding equities now?
5 year annualised return given dividend yield (DY) at entry
16%
14.5%
14%
11.8%
11.6%
12%
10.4%
10%
8%
6%
4%
2%
0%
-2%
DY
-0.9%
2.2%
2.9%
3.5%
Source: UBS. 5 year annual return data calculated since 1973 to December 2010
… present dividend yields imply a good 5 year return
4.2%
5.3%
Conclusion

JPM have an experienced team that successfully apply a disciplined investment approach

JPM have delivered consistently strong outperformance in its European dividend strategy
–

Consistently top quartile over all time periods
Dividends matter
–
They are the most important driver of equity returns over the long term
–
Equities are the only asset class yielding more than their 10 year average
–
Europe has the highest dividend yield geographically and it is supported by strong balance sheets
… JPM European Dividend Strategy is market leading
18
Appendix
19
JPM Europe Strategic Dividend Fund
Performance to 31st December 2011
Excess returns vs. MSCI Europe Net Index
10%
8.7%
8%
6%
4.1%
3.6%
4%
2%
2.1%
2.7%
2.5%
0.7%
0%
-0.6%
-2%
-4%
-4.5%
-6%
2005*
2006
2007
2008
2009
2010
2011
Q4 '11
Fund
21.2
24.5
-1.9
-41.6
43.1
13.5
-5.6
8.3
4.2
Benchmark
20.4
19.6
2.7
-43.7
31.6
11.1
-8.1
8.9
1.7
Source: J.P. Morgan Asset Management. Gross of fees. Excess return calculated geometrically. Figures are in EUR.
* From inception on 24/02/05.
20
Since incep.
(p.a.)*
JPM Europe Strategic Dividend Fund
Major stock and sector contributors to returns – Q4 2011
Key sectors
Key stock contributors
Banks (u)
Santander (u), Lloyds (u), Unicredit (u)
Energy (u)
Royal Dutch Shell (o), Transocean (u)
Credit Suisse (u)
Diversified Financials (o)
Telefonica (u)
Telecom. Services (o)
Deutsche Post (o)
Transportation (o)
Key stock detractors
Rolls-Royce (u), Atlas Copco (u)
Capital Goods (u)
Consumer Durables (u)
Real Estate (o)
Materials (u)
Stock
selection
Benetton (o), Accell (o), Richemont (u)
Asset
allocation
Shaft Sinkers (o), Xstrata (u)
IGD Immobiliare (o), London & Stamford Property (o)
Public Power (o), E.On (u), A2A (o)
Utilities (o)
-0.9
-0.6
-0.3
0.0
0.3
0.6
0.9
%
Source: Factset. Numbers in brackets show the average position over the course of Q4 2011
21
European yields are attractive versus their developed peers
MSCI World: Percentage of market cap by region with a forward dividend yield > 4%
80
Europe ex UK
70
60
UK
US
Japan
50
40
30
20
10
0
Oct-04
Apr-05
Oct-05
Apr-06
Oct-06
Apr-07
Oct-07
Apr-08
Oct-08
Apr-09
Oct-09
Source: SG Cross Asset Management, 31 August 2011
… European dividend yield looks more attractive than its developed peers
22
Apr-10
Oct-10
Apr-11
How different valuation metrics perform in different market environments
Performance of value metrics: Mar 2003 – June 2007
Performance of value metrics: June 2007 to Mar 2009
120
P/E Historical
P/E Forward
Dividend Yield
100
140
80
60
130
40
Jun 07
Sep 07
Dec 07
Mar 08
Jun 08
Sep 08
Dec 08
120
Performance of value metrics: Mar 2009 to Mar 2011
110
150
140
100
130
90
120
110
80
Mar 03 Sep 03 Mar 04 Sep 04 Mar 05 Sep 05 Mar 06 Sep 06 Mar 07
100
Feb 09
Source: Citigroup as at April 2011. Based on the interquintile spread of each valuation metrics within the European market
… dividend tends to be less cyclical than price to earnings
Past performance is not necessarily a guide to future performance.
23
Jun 09
Oct 09
Feb 10
Jun 10
Oct 10
Feb 11
European Behavioural Finance Team – resources
Michael Barakos (CIO)
UK Institutional
Europe
Institutional
Small Caps
Core / Style
Dynamic
UK Mid Cap
Client Portfolio
Management
William Meadon
Richard Webb
Jim Campbell
Michael Barakos
Jon Ingram
Martin Hudson
James Glover
Tom Buckingham
Judith Bromfield
Georgina Brittain
Ian Butler
John Baker
Jane Lennard
Louise Bonzano
Sarah Emly
Joanna Crompton
Francesco Conte
Philippa Clough
Blake Crawford
Anthony Lynch
Charlotte Crisp
James Illsley
Alexander Fitzalan
Howard
Peter Dalton
James Ford
Anis Lahlou-Abid
Edward Greaves
Nicholas Horne
Ceri Jones
Rekha Halai
Chris Llewelyn
Paul Shutes
John O’Brien
Karsten Stroh
Jeremy Wells
Stephen MacklowSmith
Ben Stapley
Kyle Williams
Steve Satchell
David Allen
… specialist investment teams with an average of 13 years experience
24
Alex Dearman
Europe – the gap between perception and reality
Performance of MSCI Europe

European macro environment will
remain tough and sentiment weak but
European equities are driven by
global demand which remains
resilient
€78bn bailout for Portugal
165
€85bn bailout for Ireland
155
145
2nd Greek bailout
€109bn + concerns
on Spain & Italy
Greek deficit revised upwards
135

Europe is attractively valued both
versus its history and other regions
125
ESM set up with
€500bn
Global Growth
Concerns
115

Dividend yields are attractive and
supported by corporate balance
sheets
IMF agree €110bn bailout
for Greece
105
95
85
75
Dec-08
European leaders agree
3 pronged agreement
EU tells France, Spain
Ireland & Greece to cut
Budget deficits
Jun-09
Dec-09
ECB start buying
Spanish & Italian debt
Jun-10
Dec-10
Jun-11
Source: Datastream. Data from 31/12/08 to 31/12/11. Includes reinvested dividends, in EUR.
... Dividend yields are supportive for European equities
Dec-11
Eurozone growth expected to remain weak
Real GDP Growth (%)
2011E Corporate revenue breakdown by region
Divergence between UK/Eurozone and rest of world
World ex Europe is as important as Europe itself for
corporate revenues
6.0
5.0
4.0
29%
3.0
2.0
1.0
54%
0.0
2%
-1.0
-2.0
Developed Europe
-3.0
-4.0
-5.0
2001
Eurozone
World
North America
15%
Others
2003
Source: UBS December 2011
2005
2007
2009
2011E
2013E
Emerging Markets
Source: Morgan Stanley Research. Note: Data refers to our analysts' 2011 estimates, based on company
information in combination with our analysts' estimates where disclosure is not detailed enough. Emerging
markets defined as World ex Developed Europe, North America and Japan.
... Emerging markets are important for corporate revenues
Are European equities reliant on domestic economic growth?
Real GDP growth versus real equity returns (1969-2009)
6.0%
Sweden
Real equity returns (%)
5.0%
4.0%
3.0%
Denmark
Switzerland
Canada
Netherlands
2.0%
Japan
France
United States
Germany
1.0%
Norway
United Kingdom
Belgium
0.0%
Austria
Australia
-1.0%
-2.0%
1.0%
Italy
Spain
1.5%
2.0%
2.5%
Real GDP growth (%)
Source: SG Cross Asset Management. MSCI Barra . Equity returns from MSCI from 1969 – 2009 and GDP data from the OECD
... European equities are not driven by domestic economic growth
3.0%
3.5%
Sovereign concerns will continue to drive sentiment in the short term
Percentage of MSCI Europe Composition
Austria
Belgium
Denmark
Finland
France
Germany
Luxembourg
Netherlands
Norway
Sweden
Switzerland
United Kingdom
Greece
Ireland
Portugal
Italy
Spain
Source: JPMorgan AM as at August 2011
Bond spreads vs German bunds
bps
2500
France 2yr
Spain 2yr
Ireland 2yr
Italy 2yr
Portugal 2yr
2000
1500
1000
500
0
Jan-11
Apr-11
Source: Bloomberg as at 5th January 2012
… the bond markets are still uncertain about peripheral Europe
Jul-11
Oct-11
Jan-12
J.P. Morgan Asset Management
FOR PROFESSIONAL INVESTORS ONLY. NOT FOR PUBLIC DISTRIBUTION.
Any forecasts, figures, opinions or investment techniques and strategies set out, unless otherwise stated, are J.P. Morgan Asset Management’s own at
November 2011. They are considered to be accurate at the time of writing, but no warranty of accuracy is given and no liability in respect of any error or omission
is accepted. They may be subject to change without reference or notification to you. The views contained herein are not to be taken as an advice or
recommendation to buy or sell any investment and the material should not be relied upon as containing sufficient information to support an investment decision. It
should be noted that the value of investments and the income from them may fluctuate and investors may not get back the full amount invested. Both past
performance and yield are not necessarily a guide to future performance. Exchange rate variations may cause the value of investments to increase or decrease.
Investments in smaller companies may involve a higher degree of risk as they are usually more sensitive to market movements. Investments in emerging
markets may be more volatile and therefore the risk to your capital could be greater. Further, the economic and political situations in emerging markets may be
more volatile than in established economies and these may adversely influence the value of investments made. You should also note that if you contact J.P.
Morgan Asset Management by telephone those lines could be recorded and may be monitored for security and training purposes. J.P. Morgan Asset
Management is the brand name for the asset management business of JPMorgan Chase & Co and its affiliates worldwide.
The Fund may not be authorised or its offering may be restricted in your jurisdiction. Prior to any application investors should inform themselves as to the
requirements within their own country for transactions in the Fund, any applicable exchange control regulation and the tax consequences of any transaction in the
Fund. Shares may not be offered to or purchased directly or indirectly by U.S. persons. All transactions should be based on the latest available simplified and full
prospectuses and any local offering document. These documents together with the annual report, semi-annual report and the articles of incorporation for the
Luxembourg domiciled SICAV Funds are available free of charge upon request from JPMorgan Asset Management (Europe) S.à.r.l., European Bank & Business
Centre, 6 route de Trèves, L-2633 Senningerberg, Grand Duchy of Luxembourg, your financial adviser or your J.P. Morgan Asset Management regional contact.
Issued by JPMorgan Asset Management (Europe) Société à responsabilité limitée, European Bank & Business Centre, 6 route de Trèves, L-2633
Senningerberg, Grand Duchy of Luxembourg, R.C.S. Luxembourg B27900, corporate capital EUR 10.000.000.
29