JPMorgan manager Gareth Witcomb is ready to take on some market risk with his multi-asset portfolio as governments roll out more support packages for their populations, but he is still leaving UK equities and gilts out in the cold.

Witcomb, who manages the £75m JPMorgan Multi Asset Growth & Income (MATE ) trust with Katy Thorneycroft, said this year has been tough with both shares the net asset down 10%. While this is in line with the average decline of other listed multi-asset funds, it is below the much smaller dips in capital preservation leaders Ruffer (RICA), Capital Gearing (CGT) and Personal Assets (PNL ).

‘I’ve been doing this since 2005 and it’s one of the toughest backdrops I’ve seen because we haven’t seen inflation at this level since the early 1980s,’ said Witcomb who has worked with Thorneycroft on the trust since its launch in 2018.

‘It’s been a massive surprise, not just to fund managers and economists, but to the central banks. The US Federal Reserve raised rates in March but it was still printing money in January and February,’ he said. ‘If a year ago you had told me that the European Central Bank would raise rates by 75 basis points [0.75%], I’d have laughed you out of the room,’ Witcomb added.

He said swiftly moving markets and economic uncertainty strengthened the case for funds that can make tactical switches between different asset classes to minimise losses and focus on delivering a 6% annual total return over five years.

This year the managers, who invest in a mix of JPMorgan institutional funds and direct share holdings, cut back their global equity positions after Russia invaded Ukraine and inflation spiked sharply higher. Exposure to emerging markets was reduced and European equities were reduced ‘significantly’, which tilted the portfolio towards the US market, which was then trimmed.

Witcomb said they have ‘kept the risk fairly low’ in the portfolio as markets ‘oscillated between two concerns’ of inflation and recession. As part of their risk-reduction, the managers bought more US government bonds when ‘we saw 10-year Treasury yields reach 3.25%’, while trimming high-yield, local currency debt of emerging market companies that would feel pressure from a strengthening US dollar.

With both debt and equity markets looking risky, the managers continued to invest in infrastructure via a private JPMorgan fund. Exposure to the groups ‘infrastructure investment fund’ was the largest holding in the trust as of last month, making up 13.3% of the portfolio.

Witcomb said infrastructure assets, which have boomed in recent years as income investors looked for a way to earn money when interest rates were at historic lows, had ‘held up well’ this year and as infrastructure assets typically ‘linked to inflation, it is not necessarily a bad thing for those assets’.

While the first half of the year was spent reducing risk, Witcomb said the cautious positioning of the portfolio means the managers can now afford to start adding a ‘measured’ amount of risk back into the fund.

Witcomb believes there could be ‘potential for upside support for equities to move higher’ as governments roll out emergency support packages to help their ailing economies. Last week saw new Conservative leader Liz Truss unveil a £150bn plan to help households through the UK’s energy crisis over the next two years.

European households are also set to benefit from the €376bn of support being offered by their governments to get them through the increasingly worrying energy crisis in the region, which is heavily reliant on Russian imports.

Witcomb said the huge sums being thrown at supporting economies through the energy crisis ‘could provide some support for risk assets as central banks tighten’.

Of Truss’s appointment as prime minister, Witcomb said it ‘remains to be seen what she does and does not deliver’ but overall the uncertainty around the lack of leadership has been resolved, which is ‘positive’.

However, he said while Truss is ‘going for growth’ with tax cuts, it was not clear ‘how she will fund these and this could create a new issue for the market’.

Either way, it does not provide Witcomb with confidence in UK markets, and he has ‘very little exposure to UK gilt yields, which have moved higher and underperformed their equivalents in the US and Germany’, as he noted that sterling is ‘under pressure’.

‘As long as there are question marks over how much money the government will spend and how it funds it, I find it hard to get excited about UK gilts despite yields at 3%,’ he said.

He is equally cautious about the opportunity for UK equities, as he said the FTSE 100 was ‘more a play on the big dollar-earners’ and is a ‘defensive play and probably not an area we are looking to make a huge trade in’.

At the moment the US equity market is ‘the best house in a bad street’ but Witcomb is also ‘keeping an eye on European-based equities which have underperformed year-to-date versus the US, which is probably right given their proximity to Ukraine’.

‘What we need to remember is there is a lot of fiscal support potentially coming through and the asset class is still unloved by investors,’ said Witcomb.