JPMorgan China Growth & Income (JCGI) invests in a portfolio of high growth companies listed in onshore China, Hong Kong and Taiwan. JCGI pays a dividend of 4% in quarterly installments almost entirely out of capital, as the managers focus on generating high total returns by investing in secular growth themes in China.
The trust has generated a high absolute return and significant excess return against the local markets in recent years, as we discuss in the Performance section. Investments in information technology, ecommerce and the expansion of financial services and consumer goods have been key drivers, as well as holdings in innovative companies in the healthcare and electric vehicle fields. Even after such a strong run, the managers believe the potential returns for investing in their portfolio are very high, with a forecast total shareholder return in low double digits over the next five years based on their fundamental analysis.
JCGI is managed by Howard Wang, Rebecca Jiang and Shumin Huang, who draw on the work of 11 other Chinese specialists in the Emerging Markets and Asia Pacific Equities Team. This team is based in Hong Kong and brings significant local knowledge and many years of experience. They currently cover 280 onshore-listed Chinese companies, and this coverage will be deepened by the team of 20 analysts in the Shanghai-based CIFM once the purchase of the latter by JPM has been finalised. This broader team should allow even greater coverage of the small and mid-cap space in onshore China, increasing JPM’s advantage in this space.
Following the implementation of the new dividend policy and a return of risk appetite to markets in Q4 2020, JCGI’s shares trade on a small premium to NAV of 1.7%, as we discuss in the Discount section.
JCGI offers a highly attractive combination of growth potential and a regular dividend which we believe deserves its premium rating. The trust has had a remarkable 12 months, with shares having more than doubled. Nevertheless, we take comfort from the managers’ confidence in the growth potential in their portfolio. Even if the last year’s returns are unlikely to be repeated, the secular growth themes in the portfolio are set for significant further expansion, thanks to the relatively low penetration of services such as cloud computing, electric vehicles and sophisticated healthcare and the opening up of new markets by China’s innovative companies.
The Chinese market is undergoing rapid change, opening up to foreign capital and becoming more sophisticated and deep with opportunities. The huge resources brought to bear by the EMAP team, with the additional onshore presence to come on board too, means JCGI should be able to offer access to the growth companies of the future as well as the existing, widely-owned giants such as Alibaba and Tencent. JCGI offers investors a way to access this potential growth while also receiving a yield, rather than investing in the low growth companies which typically offer a natural income this high.
|Large, experienced local team providing potential edge in research into mid and small caps
||Tendency to be geared increases sensitivity in falling markets
|Offers predictable dividend, without having to invest in low growth high-yielders
||Single country funds bring increased political risk, for China in particular
|Excellent track record of relative performance
||Expensive near-term valuations mean team’s assessment of high earnings growth must be met