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jp morgan hedged equity stategy funds

the original jhqax fund is only down 9.72% ytd. but the new jhdax fund is down 12.35 ytd and the new jhtax fund is down 14.85% ytd. i would appreciate it if someone could explain the reason the 2 new funds are down so much more than jhqax. im fortunate that i have a position in jhqax.

Comments

  • The series funds differ in the timing of hedging implementation via options,
    https://am.jpmorgan.com/us/en/asset-management/adv/funds/hedged-equity-fund-series/
  • edited June 2022
    The difference in hedge timing being the only difference in funds must be the difference in return, but why? Is it just coincidental, lucky that JHQAX has a better return or does this hedging strategy for some reason work better when it buys and sells? 5% difference YTD does seem like a big delta between funds. You would think timing would even out return over time.
  • My impression is the differences had to do with the months of expiration of the options the funds were buying. So, one fund might buy the July month and the other the August. Different expiration options have different sensitivities and pricing relative to the market's moves. In a volatile period like this they may react differently. I believe the option closest to the current date is usually the most sensitive to market moves, or the "spot price" of the market, but that isn't always the case.
  • msf
    edited June 2022
    I agree that seems like one part of the issue. Another perhaps related part may be the way the put spread collar works.

    Because the three month collars have different start and end months in each of the funds, it's possible for one fund to be in the "protected" area, where market declines don't affect the payoff value, while another fund could have already blown through the protection.

    See diagram below. In this example, where the collar kicks in after a 5% loss at which point it provides 10% loss "insurance". Suppose two months ago the market went up 5%, and in the past month it dropped 10%.

    A collar that started two months ago would be protecting a fund with a net 5% market loss. That is, the collar would just be kicking in now. But a collar that started just one month ago would be half used up. It would be protecting a fund with a net 10% market loss. (5% of that loss would be covered by the higher strike price put option.)

    After another 5% drop in the market, its protection would be used up. At that point, the value of the latter fund would follow the market down, while the former fund would still have some protection.

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