Investment company merger proposals are still coming thick and fast. One of the latest is a proposed tie-up between JPMorgan Multi-Asset Growth and Income (MATE ) and JPMorgan Global Growth and Income (JGGI ).

JGGI has become the go-to partner for closed-end funds looking to offer their shareholders a new home. In a fairly short time, it has expanded to over £2bn in market value and, barring a wobble in the third quarter of 2022, its shares routinely trade above net asset value.

The premium rating is presumably the reason why MATE investors are not being offered the choice of a cash exit. The thinking must be that MATE shareholders who want cash can just sell their JGGI shares in the market. MATE has assets of about £71m and JGGI has been issuing a considerable amount of shares each month in response to demand – about £34m worth in December 2023 alone. It is unlikely JGGI’s share price would be much dented even if a sizeable chunk of MATE’s investors choose to sell.

Why might MATE shareholders opt out? Well for starters, they are going to take a meaningful hit to their income as MATE yields 4.9%, while JGGI’s yield is 3.7%, about a quarter less. This matters because MATE’s main appeal has been its income and, more recently, its board’s suggestion that it would aim to match dividend increases with inflation over time.

JGGI’s dividend is, in part, manufactured from capital. The target is to pay out 4% of NAV each year. A year ago, I wondered what would happen if 2023 was a dull one for JGGI’s returns. Fortunately, its capital performance has been very good recently with the portfolio up about 15.7% over the last 12 months, helped by exposure to Microsoft, Amazon and Nvidia.

MATE shareholders have to weigh whether to take a short-term income hit in the hope that JGGI continues to perform well, and the dividend continues to grow, or swap to another trust on a similar yield. In the Association of Investment Companies’ Global Equity Income sector, this would be either Henderson International Income (HINT ) or Murray International (MYI ), both of which lag JGGI in total return terms but yield 4.8% and 4.6% respectively.

The other important part of MATE’s objective is to hold assets that are less volatile than a traditional equity portfolio. Here, the problem is more acute. My analysis suggests that MATE has done reasonably well in its effort to generate a smoother NAV. Comparing to well-known defensive multi-asset funds, it has lower volatility than Ruffer (RICA ) but more than Capital Gearing (CGT ) and Personal Assets (PNL ).

By contrast, the volatility of JGGI’s NAV returns is more than twice as high as MATE’s, and above peers such as HINT or MYI.

Unfortunately, MATE’s objective was a fairly unique one. There is no listed multi-asset fund with the same profile and the only option that I can come up with as an alternative home would be an infrastructure or renewable energy fund.

Overriding shareholders’ wishes

So, despite a shaky start in 2018 and a revamp in 2021, MATE successfully offered a differentiated investment approach. It now has the second-best NAV return in the AIC Flexible Investment sector over the past 12 months. It also does not seem that unloved, with the shares trading on a discount of about 3% before the announcement. I was even starting to think 2024 could finally be the year MATE started to grow.

Furthermore, it asked its shareholders whether they were happy for the fund to continue in its current form in August 2023, and over 75% of them said yes. I am really struggling to understand why – presumably just a couple of months later given that these things take time to negotiate – the directors felt that they should override the wishes of shareholders and go down this route. The issues of liquidity and the impact of the trust’s small size on its ongoing charges ratio that the directors cite have always been there.

However, there is a strong possibility that I am overthinking this. Once the concept of MATE was proposed back in 2018, I saw it as a potential home for pension drawdown money, as an alternative to buying an annuity. I still think that there could be demand for a vehicle doing this job, but this has never been the main marketing message for the fund, at launch or since.

When MATE was established, it was not with clamour from investors seeking a combination of high income/low volatility but rather as the default rollover option for JPMorgan Income & Capital Trust. Of the £93m raised at launch, £81m came from the rollover. Most likely, this merger will pan out the same way, with most shareholders staying put out of inertia and then, if they feel strongly about it, nudged into selling shares if JGGI’s NAV takes a tumble.

James Carthew is head of research at QuotedData.

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