497 1 d245107d497.htm UNDISCOVERED MANAGERS FUNDS
JPMORGAN TRUST I
J.P. Morgan Income Funds
JPMorgan Inflation Managed Bond Fund
JPMORGAN TRUST II
J.P. Morgan International Equity Funds
JPMorgan International Research Enhanced Equity Fund
J.P. Morgan U.S. Equity Funds
JPMorgan Market Expansion Enhanced Index Fund
UNDISCOVERED MANAGERS FUNDS
JPMorgan Realty Income Fund
(Class R2, Class R5 and Class R6 Shares)
Supplement dated December 1, 2021
to the Current Prospectuses, as supplemented
As previously supplemented on August 11, 2021, at meetings held on August 9, 2021, the Boards of Trustees agreed to consider in early 2022 the conversion of the following four mutual funds to newly created exchange-traded funds (the “ETFs”) (each, a “Conversion”):
•JPMorgan Inflation Managed Bond Fund
•JPMorgan International Research Enhanced Equity Fund
•JPMorgan Market Expansion Enhanced Index Fund
•JPMorgan Realty Income Fund
Each new ETF will be managed in a substantially similar manner as the current mutual funds. If approved by the Boards of Trustees, it is anticipated that the Conversions would occur in 2022.
By converting these strategies to ETFs, J.P. Morgan Investment Management Inc. (“JPMIM”), the investment adviser for the mutual funds, believes shareholders in these mutual funds could benefit from reduced costs, including lower transfer agency costs for certain classes and no Rule 12b-1 or service fees. JPMIM is communicating the proposed plans prior to formal board approval, in order to provide shareholders with ample notice of the planned Conversions and allow them time to engage with JPMIM on the implications of the proposed transactions, including the need to have a brokerage account prior to the Conversion.
Each Conversion would consist of (1) the transfer of all or substantially all of the mutual fund’s assets, subject to its liabilities, to the corresponding shell ETF for shares of the ETF; and (2) the distribution of the ETF shares to the mutual fund shareholders in complete liquidation of the mutual fund. It is anticipated that if approved by the Boards of Trustees, each Conversion will not require shareholder approval.
When the Conversions are considered, each Board of Trustees, including the Trustees not deemed to be “interested persons” of the mutual funds pursuant to Section 2(a)(19) of the Investment Company Act of 1940, as amended, will need to determine whether it is in the best interests of the target mutual fund and that the Conversion would not dilute the interests of the mutual fund’s shareholders.
The new ETFs have not commenced investment operations, and it is anticipated that each will not have shareholders prior to the Conversion. If the Conversions are approved by the Boards of Trustees, existing shareholders of each mutual fund will receive prior to the Conversion a combined information statement/prospectus describing in detail both the Conversion and the surviving ETF, and summarizing the Board’s considerations in approving the Conversion.
It is anticipated that each Conversion will qualify as a tax-free reorganization for federal income tax purposes and that shareholders will not recognize any gain or loss in connection with the Conversion, except to the extent that they receive cash in connection with the liquidation of any fractional shares received in the Conversion.
In connection with the proposed Conversions discussed herein, an information statement/prospectus that will be included in a registration statement on Form N-14 will be filed with the Securities and Exchange Commission (the “SEC”). After the registration statement is filed with the SEC, it may be amended or withdrawn and the information statement/prospectus will not be distributed to shareholders unless and until the registration statement is declared effective by the SEC. Investors are urged to read the materials and any other relevant documents when they become available because they will contain important information about the Conversions. After they are filed, free copies of the materials will be available on the SEC’s web site at www.sec.gov. These materials also will be available at www.jpmorganfunds.com and a paper copy can be obtained at no charge by calling 1-800-480-4111 .
This communication is for informational purposes only and does not constitute an offer of any securities for sale. No offer of securities will be made except pursuant to a prospectus meeting the requirements of Section 10 of the Securities Act of 1933.
INVESTORS SHOULD RETAIN THIS SUPPLEMENT WITH THE
PROSPECTUSES FOR FUTURE REFERENCE
J.P. MORGAN TRUST I
JPMorgan Income Funds
JPMorgan Inflation Managed Bond Fund
J.P. MORGAN TRUST II
JPMorgan International Funds
JPMorgan International Research Enhanced Equity Fund
JPMorgan U.S. Equity Funds
JPMorgan Market Expansion Enhanced Index Fund
UNDISCOVERED MANAGERS FUNDS
JPMorgan Realty Income Fund
(each, a “Fund” and together, the “Funds”)
(Class R2, Class R5 and Class R6 Shares)
Supplement dated December 1, 2021
to the current Prospectuses, as supplemented
As previously supplemented on November 23, 2021, as announced on August 11, 2021, the Boards of Trustees have agreed to consider in early 2022 the conversion of the Funds to newly created exchange-traded funds (the “ETFs”) (each, a “Conversion”). If the Conversions are approved, each new ETF will be managed in a substantially similar manner as the current Fund. In connection with the Conversions, the Board of Trustees considered and approved certain actions described below. Each of the actions will be implemented on January 18, 2022 (the “Effective Date”) only if the Boards of Trustees approve the Conversions.
On the Effective Date, the following will be added as a new section for each of the Funds except the JPMorgan International Research Enhanced Equity Fund under the heading “Investing with J.P. Morgan Funds — LIMITED OFFERING — Funds Subject to a Limited Offering — Limited Offering of Class A and Class C Shares”
Class A and C Shares (each, a “Limited Class”) are publicly offered only on a limited basis and investors are not eligible to purchase a Limited Class except as described below. Except as otherwise described below, shareholders permitted to continue to purchase shares of a Limited Class include existing shareholders of record and, if the shareholder of record is an omnibus account, beneficial owners in that account as of the effective date of the limited offering.
• Existing shareholders of each Limited Class may continue to purchase additional shares of the Limited Class in their existing Fund accounts either through J.P. Morgan Funds Services or a Financial Intermediary and may continue to reinvest dividends or capital gains distributions from shares owned in the Fund.
•Group Retirement Plans (as defined in the glossary) (and their successor, related and affiliated plans), which have a Limited Class available may continue to open accounts for new participants and can purchase additional shares in existing participant accounts.
For JPMorgan International Research Enhanced Equity Fund, the following will replace the current disclosure under “Investing with J.P. Morgan Funds — LIMITED OFFERING — Limited Offering of Certain Share Classes” on the Effective Date:
Class A Shares of the JPMorgan International Research Enhanced Equity Fund (the “Limited Class”) are publicly offered only on a limited basis and investors are not eligible to purchase the Limited Class except as described below. Except as otherwise described below, shareholders permitted to continue to purchase shares of the Limited Class include existing shareholders of record and, if the shareholder of record is an omnibus account, beneficial owners in that account as of the effective date of the limited offering...

Wood has fervent followers and strong detractors. After reaching dizzying heights the fund has slumped this year. I’m wondering how she can run an open end fund in this manner. ISTM money will flee in bad times causing all sorts of problems for management and those who hold tight.

It must be very challenging to manage fund flows for the ARK ETFs.
The funds generated eye-popping returns in 2020 which led to large inflows.
"The Ark family of ETFs shot the lights out in 2020.
All five of the firm’s mainline funds produced triple-digit returns.
Investors took notice.
The firm pulled in $20.5 billion in net flows in 2020, representing 646% organic growth.
As 2020 came to a close, the firm ranked as the 11th-largest ETF provider."
Link
Their flagship fund, ARK Innovation, has dropped precipitously from it's February high.
Outflows started in April (first time since Oct. 2019) and increased during the third quarter.
"ARKK's past 10 months are not an uncommon story.
Fear of missing out following a stellar year for a fund can drive rapid inflows, and when the fund
is unable to repeat history, investors start to lose interest.
Investors who lack patience often suffer the most by buying at a high and selling after a decline."
Link

@Sven, Spring 2020?

PRHYX is closed to new investors. However, a reasonable substitute HY bond fund is still open - US High yield, TUHYX. Performance/risk of PRHYX is a bit better.
On a lower risk tier is TRP Floating Rate fund, PRFRX. The duration is less than one year with 30 day yield of 3.8%. Bank loan or floating rate fund was brought to my attention by David Giroux of TRP Capital Appreciation fund.
Before diving into these funds, beware that during spring 2020 drawdown, they were down over 10% and bounced back quickly for the year.

The direction of junk corporate yields is up. As measured by the ICE BoA U.S. HY Index Effective Yield, they've blown out to 4.80, the highest they've been in the last year. For me, that means wait a bit to see how high they may go, to maybe grab an opportunity to pick up some yield and capital gains in the near (?) future.
FRED chart

Excerpt from Saturday’s (November 27) Wall Street Journal
“Investors’ hunt for higher fixed-income returns has powered sales of low-rated corporate bonds to a record. U.S. companies, including medical supplier Medline Industries LP and videogame maker Roblox Corp., have sold more than $455 billion of bonds with speculative-grade credit ratings this year through Monday … That already beats the full-year total for 2020, when junk-bond sales set a then-record of $435 billion.
“This year’s bond sales mark a notable reversal from the spring of 2020, when investors’worries about widespread bankruptcies and defaults sparked a selloff in low-rated debt … In a recent report, the International Monetary Fund warned that increased leverage could make the financial system more vulnerable to corrections…”
Subscription Required https://www.wsj.com/articles/high-yield-bond-sales-soar-to-record-as-investors-have-few-other-places-to-go-11637931601?mod=hp_lead_pos4

+1 fred Yes the -2.23% return in 1Q 2020 is a big factor for me-better than BBBMX DLSNX and MASNX "safer havens" that blew up on me then !

M* Portfolio "% Below 52-wk High" is price-based and is not reliable as distributions are not accounted for. The other thing to note is that for bond funds, the high was in December 2020 while for stocks in November 2021. Stockcharts provides better information.
LINK1 Prices
LINK2 Reinvested

FYI: For those who don't have a subscription to Barron's, here is the link to the complete fund profile of BAMBX that was written by Lewis Braham and published in November of 2020: https://webreprints.djreprints.com/57836.pdf
Fred

Thanks Fred. Awesome piece of writing by Lewis.
The fund? Sounds more like lasagna - a layered approach.

FYI: For those who don't have a subscription to Barron's, here is the link to the complete fund profile of BAMBX that was written by Lewis Braham and published in November of 2020: https://webreprints.djreprints.com/57836.pdf
Fred

@hank,
This past Friday was ugly. Mining stocks including NGLOY took quite a hit. GOLD took a dive too.
In next several weeks we will learn more on test results on "Omicron". There was flash of fear reflecting the consequences of February 2020 when the pandemic started. Two possible scenarios: (1) Omicron is no worse than the Delta variant and there is no significant reduction on the vaccine's efficiency, and (2) Omicron turns out to evades all vaccines and the spread cannot be readily contained unless lockdown is being imposed. If scenario #1 plays out, there is already restricted travel imposed on African countries to EU and US and the spread is NOT widespread. Also there are advanced made with Merck's and Pfizer's antiviral drugs for treatment. Scenario #2 can be quite damaging to the world since there is no vaccine solutions (and it will take at least a year to develop and manufacturing new vaccine for the world population).
To complicate the matter, the inflation, the timeline of Fed tapering, and rising rates are all taken place concurrently. COVID risk was reduced this year with vaccination, but now it is placed on top of everything else.

(Lipper* generally quotes from the manager’s description):
“The Fund seeks total return comprised of current income and capital appreciation. BlackRock will invest the Funds assets through a diversified set of strategies that seek to provide total return comprised of current income and capital appreciation in both periods of strong returns and periods of market stress.”
77% in bonds likely reason the fund was up a bit yesterday. Longer dated high quality bonds were up sharply.
Since the asset breakdown on Lipper adds up to 100%, it’s unlikely they’re doing much (if any) shorting - which generally skews the total to something over 100.
I tend to like Blackrock. Rock Rieder, one of their fixed income people, talks a good game. Bright and articulate.
No fund is a “spaghetti bowl” if one is willing to invest the time and energy into exploring the contents. In the case of TMSRX I’ve not done the due diligence I probably should have, trusting in TRP whom I’ve been with for about 30 years to run that complex fund on the straight and narrow and not put my money at excessive risk. But that’s laziness on my part - not dereliction on theirs.
@Baseball_Fan - Could you share a little about your current investment approach? What do you like in addition to near 0% cash? I recall about 6-7 months ago you were buying Home Depot and also looking for inflation hedges. The problem with those inflation hedges is that a lot of other people caught the scent in the wind 6 months ago and chased. It’s a diverse lot. Some areas (certain industrial metals) are doing fine and may not be overpriced. But it’s a rough playing field as evidenced by the more than 6% drop in oil yesterday.
*Link to BAMBX Lipper profile: http://www.funds.reuters.wallst.com/US/funds/overview.asp?YYY622_6m0GgCfSF7IkKdT1pfwHShuZTH3KwZb8EX/lL+8rQLcR/QKIWm+VprdhsazlKneG

In an important respect, the risks of owning private equity and debt are far greater in mutual funds, ETFs and hedge funds than life insurers. Life insurers have long-term floats or capital bases as people don’t “redeem” their capital until they die. Meanwhile mutual funds/ETFs must provide daily liquidity and hedge funds quarterly liquidity. So there shouldn’t be a run on insurer assets of panicked investors during a downturn. That would suggest they can afford to have some illiquid assets in the mix. The problems that could occur would be if they lever their investments—see AIG—or if there is actually a sudden increase in the death rate as, well, in a major pandemic. That said, levering ones bets on a seemingly safe liquid investment like mortgage bonds might be riskier than having less or no leverage on illiquid private debt. Also worth noting, while traditional insurers have been fairly conservative in their allocations historically in high quality bonds, some have chosen more equity exposure, notably Buffett’s Berkshire Hathaway.

“U.S. life insurers are backing Americans’ policies with bigger slugs of riskier, higher-yielding investments. Holdings of real estate, below-investment-grade bonds, mortgage loans, private equity, hedge funds, limited partnerships and privately placed debt increased 39% from 2015 to 2020, outpacing the 26% increase in total cash and invested assets, according to a new report by Moody’s Investors Service. As a result, these so-called illiquid assets represented about 35% of insurers’ $4.04 trillion in investments as of Dec. 31, 2020, up from 32% out of $3.2 trillion in 2015.”
(Move to riskier assets may impact market liquidity - more evident during times of stress.)
Excerpt from WSJ (11/24/2921) - https://www.wsj.com/articles/life-insurers-use-riskier-assets-to-back-consumers-policies-11637663580 - Subscription Required

@davidmoran, I find it interesting that "B" is still a small cap value company. A little history:

Wallace Barnes began working for both his father Alphonso and grandfather Thomas in the family hotel and general store. The general store specialized in clocks, but it also sold drugs and general merchandise. Wallace eventually became skilled as a druggist. Partly because he and his father did not get along, however, he left to start his own druggist shop in a nearby town. Lackluster returns from that venture prompted him to try his hand at a new business, clockmaking. Wallace started out contracting to supply cut glass, doors, and parts to different clockmakers who were part of the bustling clock trade that had developed in Bristol; in fact, Bristol was known as the clockmaking capital of the United States at the time. Unfortunately, the local clock industry fell on hard times when the Panic of 1857 caused a severe depression.
At the time of the Panic, Wallace was working for clockmaker A.S. Platt. Platt, for whom Wallace had been working at the rate of $1.25 per day, became unable to pay him for his services. Instead of cash, Barnes accepted some hoop-skirt wire as compensation. In a move that demonstrated his dealmaking savvy, Wallace hauled the wire in a wagon to nearby Albany. There, he traded the wire for a financially troubled haberdashery store. Rather than stay to run the store himself, Wallace turned around and traded it for a Missouri farm that he had never seen. Upon returning to Bristol, he managed to trade the farm for a blacksmith shop, which he sold for the handsome sum of $1,600. Incredibly, Wallace used the money to purchase the troubled A.S. Platt, the company that had given him the wire in the first place.

https://company-histories.com/Barnes-Group-Inc-Company-History.html

Thanks @Junkster,
Interesting discussion on his website through many of his video interviews...here's one:
His site:
https://diewithzerobook.com/welcome

Thanks bee, actually listened to it. On a somewhat related note, one topic I never see discussed is the cruelty of the constant compounding of our capital over time. Meaning, because of the compound effect the older we get the more money we have. At some point that increasing wealth gets meaningless as we are less likely and able to enjoy our nest egg, That has never been apropos than since 2008 as the markets have steadily marched higher and higher.

December Newsletter is out:
outperforming-the-market-while-the-fed-is-on-hold

Summary
Since March 2020, Fed short-term rate policy has been on hold and stocks have soared.
Such prior "on hold" periods have also led to excellent returns.
While this hold cycle continues, Growth funds/ETFs are likely to excel the overall market.
But even better than Growth, small cap stock funds/ETFs have outperformed during these on-hold periods.
When the Fed does raise rates, Financial and Real Estate funds, along with Growth funds, will be your best bet.

This chapter on CEFs of the ICI Factbook shows that CEFs are a rather tiny segment of funds - there were 494 CEFs with total AUM of $279 billion only as of 12/2020. They are the oldest form of funds that have existed since late 1800s but are rather complex in structure and never caught on with the masses. About 38% are equity CEFs and 62% bond CEFs. Mutual funds (OEFs) came along in late 1920s and ETFs in early 1990s. https://www.icifactbook.org/21_fb_ch5.html
Ireland IRL is quite concentrated, not leveraged, has a high ER of 1.96% (0.65% for management is OK but 1.31% "other" is high considering that there is no leverage), has high distribution due to managed-distribution policy (many CEFs do) but its large discount has persisted. One has to know more about Ireland, N Ireland, UK and EU to be exposed to IRL. Strong dollar also cuts into the return for the US investors.

Perhaps some portion of the population that "retired" during the pandemic will stay retired long term. And, perhaps some younger people who were previously in dual worker households and who opted out of the labor force during the pandemic will remain at home long term thereby causing the the number of single worker households to increase. I suspect both of those changes in the composition of the workforce may be happening. Those issues will factor into the Fed's decision about when to start raising interest rates. That decision will also need to wrestle with the Fed's maximum employment mandate:

Complicating the decision-making and posing a challenge for communications is the much-hailed revamping of the central bank’s strategy in August and September 2020.
Chair Powell, Governor Brainard and colleagues agreed then it would “be appropriate” to keep borrowing costs ultra-low until maximum employment was reached, which they redefined as a “broad-based and inclusive goal.”
One problem: The Fed’s policy framework doesn’t address how officials should balance risks between inflation and employment, an omission drawing criticism from economists such as Harvard University’s Jason Furman, who led former President Barack Obama’s Council of Economic Advisers.

Powell or Brainard Will Struggle

In the Foreign Large Blend category, I like SCIEX and MIEIX*.
The SCIEX management team also manages 30% of VWILX.
MIEIX has below average costs, low turnover, and usually provides good downside protection.
Mr. Ling started managing MIEIX on 10/01/2009; Mr. Webber began managing SCIEX on 03/01/2010.
Portfolio Visualizer Results from Mar 2010 - Oct 2021
*Morningstar fund category was Foreign Large Growth prior to 2020

Thank you, @Observant1 as well. I looked up MIEIX and noticed a large outflow of funds this year from M*'s pages. By the way, which brokers allow to hold/trade this fund as Schwab says: "Restricted".