PORTFOLIO DISCUSSIONMaritime investing: An income …€¦ · PORTFOLIO DISCUSSIONMaritime...

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Transcript of PORTFOLIO DISCUSSIONMaritime investing: An income …€¦ · PORTFOLIO DISCUSSIONMaritime...

With interest rates at or near all-time lows across the developed world, and an increasingly uncertain equity market, consistent and dependable yield has become the holy grail of both retail and institutional investors. This quest is likely to drive investors to markets they may not have considered in the past. The rise of new yield-oriented investment vehicles has been a notable characteristic of the post-global financial crisis landscape. However, in the sea of alternative investing, the island left largely unexplored remains the maritime industry. Investing in maritime assets is an area where we anticipate increased popularity, based on the premise that such investments offer a new avenue for obtaining scarce higher-yield-oriented returns. Ships—like buildings, pipelines and toll roads—can provide a visible, reliable and consis-tent stream of income. We believe, when risk can be effectively managed, a maritime strategy is capable of generating an attractive relative return vs. other financial and real assets.

A yield-oriented maritime strategy, employing diversified and long-term charters to creditworthy counterparties, can provide income in excess of other yield-oriented alternative strategies, such as infrastructure and real estate (Exhibit 1, next page). This premium extends to more mainstream financial assets, such as equities, fixed income, REITs and master limited partnerships (MLPs). It is worth noting that mari-time investments have the added benefit of being nearly all U.S. dollar denominated, decreasing foreign exchange risk.

IN BRIEFWe believe a maritime investment strategy, rigorously planned and efficiently executed, could anchor today’s income-oriented portfolios. Global shipping is showing signs of recovery. Current long-term charter rates today allow for profitable employment of shipping assets with strong counterparties. In our view, yield-oriented maritime asset investments offer a unique combination of benefits: attractive total return potential, the inflation protection of real assets, low correlation to financial and other real assets, and a premium yield in an otherwise income-starved environment.

AUTHOR

Justin YagermanGlobal Maritime SpecialistGlobal Real Assets Maritime

FOR INSTITUTIONAL/WHOLESALE OR PROFESSIONAL CLIENT USE ONLY | NOT FOR RETAIL DISTRIBUTION

January 2015

PORTFOLIO DISCUSSIONMaritime investing: An income opportunity

INVESTMENTINSIGHTS

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The maritime industry is the workhorse of the global economy. Seaborne trade amounted to approximately 50 trillion ton-miles in 2013 and has averaged over 6.5% growth per annum since 2001, exceeding average global GDP growth of 4.0% over the same period. Roughly $1.8 trillion has been invested in new vessels over the past 20 years, a figure Clarksons, one of the world’s leading ship brokers, anticipates will double within the next decade due to replacement of current vessels as well as expansion of the global fleet.

In addition, we believe the maritime sector offers distinct advantages over the fixed income market, especially in a ris-ing rate environment. Unlike bonds, which typically underper-form in rising interest rate and inflationary environments, the maritime sector is positively correlated to inflation. In fact, given shipping’s vital role in the global economy, we would expect underlying vessel asset values to improve in an eco-nomic-growth-driven rising interest rate environment.

Rising tides? Interest rates and inflationWhile we are not predicting future interest rates or fixed income performance, we do believe that the relatively high duration of fixed income investments, as evidenced by the Barclays Global Aggregate Index, accompanied by ongoing low yields, may eventually become a tough challenge for fixed income investors. There is very little yield cushion in bond prices if interest rates eventually rise from historical lows (Exhibit 2). As investors look for a long-term yield and/or fixed income substitute, it is worth noting that maritime assets do not have the same directional interest rate sensitivity as bonds. In fact, even in moderately inflationary environments, long-term maritime returns have outperformed other investment alternatives.

The gap between yield and duration is the widest it has been in over two decades, leaving little yield cushion when rates riseEXHIBIT 2: BARCLAYS GLOBAL AGGREGATE INDEX

Source: J.P. Morgan Asset Management, Barclays; data as of September 30, 2014.

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With the right factors in place, maritime yields can substantially exceed those expected from other asset classesEXHIBIT 1: CURRENT ASSET CLASS YIELDS

Source: J.P. Morgan Asset Management, Barclays, Clarksons, FTSE/EPRA NAREIT, MSCI, S&P; data as of September 30, 2014.

Metrics used: dividend yield for equities, REITs and listed infrastructure; yield-to-worst for fixed income. The OECD core/core+ infrastructure yield is derived from the J.P. Morgan Global Real Assets OECD Infrastructure strategy trailing 12-month cash yield; the U.S. core+ real estate yield is derived from the J.P. Morgan Global Real Assets U.S. Core-plus Real Estate strategy trailing 12-month income return; and the maritime assets yield is derived from the J.P. Morgan Global Real Assets target yield for income-oriented maritime assets.

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2 | Maritime investing: An income opportunity

PORTFOLIO DISCUSSION: Title Copy HereINVESTMENTINSIGHTS Maritime investing: An income opportunity

Shipping, while not as visible as real estate, arguably plays a greater role in modern life. The global maritime industry moves 90% of world trade. For example: sneakers from facto-ries in Vietnam to joggers in the U.S.; cell phones from assem-bly plants in China to consumers in Europe; soybeans and wheat from the U.S. to noodle makers in China. Even these basic examples fail to reflect the full depth and complexity of maritime networks. A commuter’s everyday automobile, for instance, is typically an import from many different geogra-phies—steel smelted in Japan with coking coal mined in Canada and iron ore sourced in Australia or Brazil. So even a new “domestic” car may have traveled tens of thousands of miles before it leaves the showroom.

The map in Exhibit 3 illustrates some of the world’s myriad ship-ping lanes, giving a sense of some of the variety of trade routes that exist across the three main shipping sectors: bulkers, tank-ers and containerships. In addition, the exhibit provides a break-down of some of the main cargoes moved by these ships.

Like real estate and infrastructure, maritime assets—most often ships—are typically long-lived, with an average useful life of 25 to 30 years. They are employed in numerous global industries by a wide variety of end users of diverse credit quality. There are also multiple employment opportunities and structures that offer a variety of options regarding duration of employment and consistency of revenue (see “A primer on ships for hire,” page 6). Vessels also come in a wide range of sizes and ages, and there can be differences in construction quality based on a vessel’s yard of build as well as ongoing maintenance.

Just as no real estate investor would assume that all buildings are created equal, different vessels combine divergent qualita-tive and quantitative variables, which can impact risk and return profiles. Nevertheless, while ships vary by sector, carry-ing capacity, demand fundamentals, yard of build and mainte-nance record, they do enjoy a degree of homogeneity among specific vessel sizes, allowing for price transparency within size categories. Exhibit 4 (next page) breaks down the global fleet by tonnage.

Refinery

Fuel

Fuel

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Refined productand crude

Retailer

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TankersWorld seaborne trade summary (metric tons, millions)

Containerships

Bulkers

Iron ore1,312

Coal1,229

Grain406

Minor bulk1,575

Crude 1,831

Products997

Fuel322

Containers1,629

Other dry1,014

Mining facility

The maritime network: The web that ties the world togetherEXHIBIT 3: GLOBAL TRADE ROUTES FOR THREE MAIN SHIPPING SECTORS

Source: J.P. Morgan Asset Management, Clarksons; data as of September 30, 2014. For illustrative purposes only.

Principal cargoes by shipping sectorDry bulk Dry cargo (e.g., Iron ore, coal, grain)

Tanker Liquids (e.g., crude oil, refined petroleum)

Containership Finished goods

J.P. Morgan Asset Management | 3

A closer look at the recent maritime cycle: Choppy watersWe see an attractive entry point today for maritime invest-ments. Few major global industries experience the same peak-to-trough variation as the maritime industry. Later in this paper we will talk about how to hedge the extremes with time char-ters and counterparty selection, but it is maritime’s volatility that often creates opportunity for investors. Exhibit 5 charts the

past 10 years of performance of the Baltic Exchange Dry Index (the benchmark for dry bulk shipping rates); average earnings for five-year-old VLCCs (VLCCs, or very large crude carriers, are the largest crude oil tankers); and the Clarksons average con-tainership earnings index. These data series all tell very similar stories, with peak-to-trough movement of greater than 94%, 99%, and 85%, respectively. Rates soared in 2007–08 and sank in the aftermath of the global financial crisis, underscoring the cyclical nature of the industry. Rate recovery has been inconsis-tent, with only modest gains, on average, though real funda-mental improvement appears to be taking hold in some sectors.

Exhibit 6 (next page) tells a parallel story for asset values across the maritime sector for this 10-year period. The prices of five-year-old Capesize dry bulk vessels1 (the largest dry bulk ships), five-year-old VLCCs and five-year-old post-Panamax containerships2 fell 79%, 67%, and 63%, respectively peak to trough. The subsequent rebound in dry bulk and tanker values has been encouraging, but prices still lag their 10-year averag-es by 25% and 22%. Containership values have not rebounded to that extent and remain generally depressed.

1 Ships that have to travel between Europe and Asia around Africa’s Cape of Good Hope because they are too large to traverse the Suez Canal.

2 The largest vessels that can pass through the Panama Canal

90% of the world’s trade is carried by vessels in three sectorsEXHIBIT 4: GLOBAL FLEET BY TONNAGE

Source: Clarksons; data as of September 30, 2014.

Tankers34%

Bulkers43%

Total deadweight tons: 1.67 billion

Containerships13%

Others10%

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Post-crisis maritime earnings have taken a long time to stabilizeEXHIBIT 5: RATES OVER THE LAST 10 YEARS FOR THE THREE MAIN SHIPPING SECTORS

Source: Clarksons; data as of December 31, 2014.

Indexed to November 1999 = 100.

4 | Maritime investing: An income opportunity

PORTFOLIO DISCUSSION: Title Copy HereINVESTMENTINSIGHTS Maritime investing: An income opportunity

Navigating vessel employment optionsLike a real estate owner, a ship owner has to toggle the length of a “lease”—which in shipping corresponds to a charter—and counterparty credit quality to generate desired risk-adjusted returns. Charters vary in length from short-term spot market employment, measured in weeks or months, to longer-term period charters, typically measured in years. Spot market charters can drive maximum profits in a strong market but leave a vessel exposed to market volatility, given their short duration. Period charters (such as time charters and bareboat charters) bring a measure of stability to the table. Large end users, such as oil conglomerates, major mining companies and global commodity traders, that have visibility into their future transportation needs can insulate themselves from the gyrations of the market through longer-term contracts.

Ship owners, for their part, ensure a vessel’s employment, lock in a predictable cash flow and earn steady income, assuming they purchased the vessel at a price that allows for sustained profitability (that is, the operating expenses of the vessel, plus financing costs, do not exceed the charter hire)

and have chartered the ship to a creditworthy counterparty. Because charter contracts can transfer with ownership, they support asset values in a down market (or limit the upside on asset values in a rising market).

As with real estate leases, period charters can extend to five years or 10 years and in some cases can cover the 25- to 30-year economic life of a ship.3 Credit quality grows in importance as the length of the charter increases. It can also have an impact on rates, depending on market conditions. Investment grade counterparties can often garner more favorable terms—especially in a tepid market. In many cases, the yield that period charters achieve can far exceed that realized for fixed income securities issued by the very same counterparty. While there are arguably more risks assumed in the operation of a vessel than in buying a bond or making a loan to a corporate entity, experienced vessel operators and careful counterparty selection can help mitigate these risks.

3 In a worst-case scenario, an investor can always rely on the versatility of the vessel’s employment alternatives. If a charter does not perform, the ship owner may re-charter the vessel at the prevailing rate, which may, of course, differ, either positively or negatively, from the charter rate at inception.

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Post-crash ship prices have begun to reboundEXHIBIT 6: PRICES OVER THE LAST 10 YEARS FOR THE THREE MAIN SHIPPING SECTORS

Source: J.P. Morgan Asset Management, Clarksons; data as of December 31, 2014.

Post-Panamax containership capacity = 9,000 20-foot-equivalent units. Lack of pricing data prior to 2008 for Post-Panamax containerships.

J.P. Morgan Asset Management | 5

In contrast to fixed income yields, pre-crisis shipping rates typically fell as duration increases EXHIBIT 7: ILLUSTRATIVE FIXED INCOME AND PRE-CRISIS SHIPPING RATE CURVES

Source: J.P. Morgan Asset Management, Bloomberg; data as of September 30, 2014.

Bloomberg Treasury yields shown at each respective duration.

Spot

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A PRIMER ON SHIPS FOR HIRE

Voyage Charter (Spot Market): Contract typically for single voyage. Owner is paid based on tons of cargo carried from loading to discharge port and is responsible for voyage expenses (fuel costs and port fees) and vessel operating expenses (such as crewing, repairs and maintenance, insurance, stores and provisions, etc.). Charterer typically is responsible for any port delays (“demurrage”) but not for off-hire days. Spot market charters move fluidly with market demand and can vary widely by route, vessel type and age. Greatest degree of volatility.

Time Charter: Contract for a pre-defined period of time, typically one year or longer. Owner is paid an agreed-upon dollars-per-day rate for length of contract. Owner is responsible for vessel operating expenses, while charterer is respon-sible for voyage expenses. Charterer determines vessel’s commercial management (where it operates). Rates for short- to medium-term time charters vary with the spot market, but are somewhat insulated from short-term factors. Longer time charters typically do not carry the same degree of spot market fluctuation risk as voyage charters, but do carry greater counterparty risk.

Bareboat Charter: Similar to a time charter, but charterer pays all vessel operating expenses in addition to voyage expenses. Structure is similar to a triple net lease in real estate, thus eliminating the lessor’s operating risk. Bareboat charters are typically quoted in dollars per day and equate to time charter rates, less operating expenses. This employ-ment type reduces the owner’s involvement to a more passive role and is often viewed as a financing vehicle. Generally, these are long-term arrangements, often spanning the useful life of the vessel.

a “Hire rate” refers to the basic payment from the customer for the use of the vessel.b Voyage expenses are all expenses unique to a voyage, including fuel costs, port fees, cargo loading and unloading expenses, etc.c Vessel operating expenses include crewing, repairs and maintenance, insurance, stores, lube oils, communication expenses, etc.d ”Off-hire” refers to the time a vessel is not available for service.

SUMMARY OF PRINCIPAL CHARTER STRUCTURES

Voyage charter (spot) Time charter Bareboat charterTypical contract length Single voyage One year or more One year or moreHire rate basisa Varies Daily DailyVoyage expensesb Ship owner pays Charterer pays Charterer paysVessel operating expensesc Ship owner pays Ship owner pays Charterer paysOff-hired Charterer does not pay Ship owner pays Charterer pays

Charting today’s course: The upside of a down marketUnlike a normal yield curve in the fixed income market, where longer-maturity bonds have a higher yield than shorter-matu-rity bonds, in the strong pre-crisis shipping market prices for longer-term charters fell below the spot market rates, result-ing in a downward-sloping curve. Further out in time, ship owners were willing to accept reduced rates to lock in reve-nues. In this scenario, a five-year charter generated lower average revenues than a three-year charter, which in turn generated a lower rate than a one-year charter (Exhibit 7). This discount was driven in part by the notion that, over time, rates eventually experience mean reversion as supply and demand comes into balance.

6 | Maritime investing: An income opportunity

PORTFOLIO DISCUSSION: Title Copy HereINVESTMENTINSIGHTS Maritime investing: An income opportunity

Conversely, in a depressed market like that of the past several years, the curve can be inverted and slope upward. If rates are expected to rise, shippers are willing to pay a premium in order to lock in low shipping rates, and ship owners will require higher compensation to forgo revenue opportunities in a recovering environment. With spot rates across market sectors generally below 10-year averages today, we are seeing a curve inversion in charter rates (Exhibit 8).

Exhibit 9 illustrates this point by tracking the average Capesize rate curve in the strong pre-crisis dry bulk market vs. the average post-crisis rate curve. The pre-crisis curve exhibited what we would expect from a capacity-constrained shipping market. Charter rates dropped during the 2004–07 period as charter lengths extended. In contrast, in the current market rates are moving upward along the curve from spot rates to five-year time charters.

The wind in our sails: Income and appreciation potential The current environment presents a twofold opportunity. Low historical asset values, together with firming charter rates, cre-ate the potential for yields above those in other asset classes. At the same time, a recovering market opens the possibility of enhanced residual value. We believe an income-driven approach can work well in the present phase of the maritime cycle. While

asset values have yet to return to their historical mean, they have moved off the bottom (see Exhibit 6). Meanwhile, rates in the spot market have fluctuated between profitable and unprof-itable levels across sectors (depending on underlying basis and financial leverage). However, longer-term period charters have remained at much more robust levels of profitability (albeit with varying degrees of availability in the market) and have helped support asset values. As a result, we believe that by employing

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With spot rates not fully recovered, conditions favor an inversion in the charter rate curve EXHIBIT 8: SPOT RATES OVER THE LAST 10 YEARS FOR THE THREE MAIN SHIPPING SECTORS

Source: Clarksons; data as of December 31, 2014.

Shipping rate curves have inverted recently, an anomaly that has created opportunities for fixed income investorsEXHIBIT 9: AVERAGE PRE- AND POST-CRISIS CAPESIZE RATE CURVE

Source: J.P. Morgan Asset Management, Clarksons; data as of December 31, 2014.

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J.P. Morgan Asset Management | 7

CALCULATING THE LONG-TERM STRATEGY MARITIME RETURN SERIES

The annual maritime assets total return series is derived from the Clarksons Research historical data for the bulker, tanker and containership maritime sub-sectors. The sub-sector allocations used to calculate the maritime asset returns are as follows: 33% tankers, 35% bulkers and 32% containerships, in order to approximate the exposures of a world fleet investment strategy. For the purposes of developing a proxy for an income-oriented maritime strategy, each annual re-turn figure assumes a five-year investment hold period and uses beginning-of-period (January) three-year base ship time charter rates over the investment period.

For example, the 1994 total return assumes December 1989 month-end five-year-old base ship second-hand sales price as the purchase price and the December 1994 month-end 10-year-old base ship secondhand sales price as the exit price. Each month over this investment period, the Ebitda is calculated based on revenue from the three-year time charter rate determined at the beginning of the investment period (January 1990 in this example), 2.5%–5% charter commission expenses and market-reported monthly operating expenses. This Ebitda provides for the monthly cash flows over the as-sumed life of the investment. The total return is calculated using the respective purchase prices, exit values and monthly cash flows for bulkers, tankers and containerships separately.

an asset on a long-term charter today we can achieve rates that, on average, discount a higher degree of industry recovery than spot rates. Such a strategy can participate in the improve-ments achieved in asset values, while simultaneously generating the sustainable yields seen in Exhibit 1.

We are often asked why customers would look to do these types of long-term employment agreements. The answer is relatively simple. For large end users such as oil conglomerates, global commodity traders and major mining companies, these vessels are the essential link between a company’s product and market. These companies have visibility into their future transportation needs, and as a result, they seek to fill a portion of those needs in advance and to appropriately size their market exposure. Like a ship owner, they, too, seek to insulate themselves from the gyrations of the market. In addition, for most of these compa-nies, shipping is not a core competency. Therefore, their human and financial capital is better spent elsewhere.

Cross currents: Maritime exhibits low correlations vs. other assetsOne of the advantages of a maritime investment is its relatively low correlation to financial and other real assets. This quality can be further refined, for those seeking consistent yield, through the revenue stability offered by an income-oriented shipping strategy that employs long-term charters. Exhibit 10 (next page) shows a correlation matrix comparing global maritime asset returns with equity, fixed income and real-asset index returns over the past 15 years (1999–2013). The first column lists correlations with maritime returns for a spot-oriented strategy. The correlations are generally low vs. other income-oriented and real assets, and the historical return dur-ing this period is second only to that of MLPs, which outper-formed maritime by merely 30 basis points. The second col-umn’s long-term global maritime strategy, which employs assets on three-year fixed charter rates, forces correlations even lower. Despite offering less total return over the same 15-year period, the stable charter revenue stream drives more favorable correlations and adds portfolio diversification.

8 | Maritime investing: An income opportunity

PORTFOLIO DISCUSSION: Title Copy HereINVESTMENTINSIGHTS Maritime investing: An income opportunity

Maritime world fleet

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Emerging market equities 0.4 0.2 0.8 1.0

Global bonds 0.3 0.2 -0.1 0.0 1.0

U.S. high yield bonds 0.1 -0.2 0.7 0.7 0.2 1.0

U.S. REITs 0.5 -0.1 0.5 0.4 0.2 0.7 1.0

MLPs 0.3 -0.1 0.5 0.4 0.1 0.8 0.7 1.0

U.S. Core-plus real estate 0.5 0.1 0.2 0.0 -0.3 -0.3 0.2 -0.2 1.0

OECD infrastructure 0.4 -0.2 -0.1 -0.2 0.4 -0.1 0.5 0.2 0.2 1.0

Historical return (CAGR) 17.0% 10.1% 4.8% 11.2% 4.8% 7.5% 10.4% 17.3% 10.4% 8.1%

A maritime charter strategy has delivered exceptional diversification benefitsEXHIBIT 10: SPOT-ORIENTED STRATEGY AND 15-YEAR CORRELATION MATRICES USING ANNUAL DATA IN USD

Source: J.P. Morgan Asset Management, Alerian, Barclays, Clarksons, Bloomberg, MSCI, NAREIT, NCREIF levered; data as of December 31, 2013.

All data is annual and denominated in USD.

Shipshape: Taking it apart to put it togetherIn Exhibit 11 we disaggregate the total return components for a five-year-hold maritime strategy. Here we have broken out 20-plus years of yield and asset price movements into their distinct components, which together make up total return. The long-term average yield comes in at 10.5%, bolstering our

argument for an income-oriented maritime investment. With asset values currently low and on an upward-sloping rate curve, we believe an attractive entry point exists for this type of strategy. Looking back at the return components over the past two decades, we can see this strategy has generated solid and relatively stable income. Additionally, the average impact of depreciation on total return throughout the period below is relatively neutral.

Despite its volatility, maritime’s total returns have been positive 14 of the last 15 years, thanks to strong and steady yieldsEXHIBIT 11: WORLD FLEET FIVE-YEAR-HOLD YIELD ANALYSIS

Source: J.P. Morgan Asset Management, Clarksons; data as of November 30, 2014.

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J.P. Morgan Asset Management | 9

Checking all the boxes: Maritime assets can be, and should be, part of a diversified portfolio, given the attractive investment character of the asset classEXHIBIT 13: MARITIME BENEFITS

Source: J.P. Morgan Asset Management.

Diversification to...

Essential nature

High return potential

Attractive historical returns

High income potential

Long-term cash flow visibility

Financial assets

Other real assets

Inflation sensitivity

Complementary strategy

Maritime assets ü ü ü ü ü ü ü ü ü

Ending our voyageDespite being a very old industry, maritime is a new and exciting asset class for institutional investors. With a search for income in a low interest rate environment as our starting point, we have examined how long-term maritime charters are capable of generating better yields than other real and financial assets. They offer inflation protection not available in

conventional fixed income investments, and low correlations insulate maritime when contrasted with other income-generating strategies. Finally, low historical asset values afford the prospect of relative asset value appreciation in a future recovery. We believe maritime ticks the boxes investors are looking for and can provide the income they need (Exhibit 13).

10 | Maritime investing: An income opportunity

PORTFOLIO DISCUSSION: Title Copy HereINVESTMENTINSIGHTS Maritime investing: An income opportunity

ABOUT J.P. MORGAN ASSET MANAGEMENT—GLOBAL REAL ASSETS

J.P. Morgan Asset Management—Global Real Assets has more than $79 billion in assets under management and approxi-mately 400 professionals in the U.S., Europe and Asia, as of September 30, 2014. With a 45-year history of successful investing, J.P. Morgan Asset Management—Global Real Assets’ broad capabilities provide many of the world’s most sophisticated investors with a global platform of real estate, infrastructure, maritime/transport and energy strategies driven by local investment talent with disciplined investment processes consistently implemented across asset types and regions. The Global Real Assets team is part of J.P. Morgan Asset Management’s Alternatives Investments business, which collectively manages over $120 billion in client assets across real assets, hedge funds, credit and private equity.

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CONTRIBUTORS

Bernie McNamaraExecutive DirectorPortfolio ConstructionGlobal Real Assets Omni

Pulkit SharmaVice President Portfolio ConstructionGlobal Real Assets Omni

Ryan HolganAssociatePortfolio ConstructionGlobal Real Assets Omni

Joseph KnightAssociatePlatform SpecialistGlobal Real Assets Maritime

NOT FOR RETAIL DISTRIBUTION: This communication has been prepared exclusively for Institutional/Wholesale Investors as well as Professional Clients as defined by local laws and regulation.

The opinions, estimates, forecasts, and statements of financial markets expressed are those held by J.P. Morgan Asset Management at the time of going to print and are subject to change. Reliance upon information in this material is at the sole discretion of the recipient. Any research in this document has been obtained and may have been acted upon by J.P. Morgan Asset Management for its own purpose. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as advice or a recommendation relating to the buying or selling of investments. Furthermore, this material does not contain sufficient information to support an investment decision and the recipient should ensure that all relevant information is obtained before making any investment. Forecasts contained herein are for illustrative purposes, may be based upon proprietary research and are developed through analysis of historical public data.

J.P. Morgan Asset Management is the brand for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. This communication may be issued by the following entities: in the United Kingdom by JPMorgan Asset Management (UK) Limited; in other EU jurisdictions by JPMorgan Asset Management (Europe) S.à r.l.; in Switzerland by J.P. Morgan (Suisse) SA; in Hong Kong+C94 by JF Asset Management Limited, or JPMorgan Funds (Asia) Limited, or JPMorgan Asset Management Real Assets (Asia) Limited; in India by JPMorgan Asset Management India Private Limited; in Singapore by JPMorgan Asset Management (Singapore) Limited, or JPMorgan Asset Management Real Assets (Singapore) Pte Ltd; in Australia by JPMorgan Asset Management (Australia) Limited ; in Taiwan by JPMorgan Asset Management (Taiwan) Limited and JPMorgan Funds (Taiwan) Limited; in Brazil by Banco J.P. Morgan S.A.; in Canada by JPMorgan Asset Management (Canada) Inc., and in the United States by J.P. Morgan Investment Management Inc., JPMorgan Distribution Services Inc., and J.P. Morgan Institutional Investments, Inc. mem-ber FINRA/SIPC.

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PORTFOLIO DISCUSSION: Title Copy HereINVESTMENTINSIGHTS Maritime investing: An income opportunity